Twitter A Trending Topic Among Sell-Side Analysts

Twitter IncTWTRfirst-quarter earnings report

JMP: 3 Likes And 3 Dislikes

Ronald Josey of JMP maintains a Market Perform rating on Twitter's stock with no assigned price target.

BMO: More Work Needed

BMO Capital Markets' Daniel Salmon maintains a Market Perform rating on Twitter's stock with an unchanged $17 price target.

Cowen: Not Enough To Budge

Oppenheimer: Competitive Environment Is Challenging

Oppenheimer's Jason Helfstein maintains a Perform rating on Twitter's stock with no assigned price target.

Cantor Fitzgerald: Low Visibility

Cantor Fitzgerald's Kip Paulson maintains a Neutral rating on Twitter's stock with an unchanged $16 price target. The analyst did highlight a "bright spot" in the report. Namely, First View, pre-roll and live-streaming video ads helped contribute a 139 percent year-over-year increase in total ad engagements and average cost per engagement fell 63 percent. This means Twitter's advertisers are now seeing "significant" ROI improvements, and the company plans on showcasing even more live premium content at the NewFronts presentation on Monday.

Goldman Sachs: Favorable Risk To Reward Profile

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Josey highlighted three notable positive aspects of the earnings report, including:

1. The re-acceleration of daily active users for the fourth consecutive quarter.
2. Improvements in advertising ROI metrics in which cost-per-engagement fell 63 percent year-over-year.
3. The better than expected profitability in which EBITDA came in around 80 percent above the high end of guidance.

On the other hand, the analyst found three negative aspects of the report, including:

1. An 11 percent year-over-year decline in ad revenue along with expectations for continued headwinds moving forward.
2. A declining gross margin due to content costs ramps.
3. Second-quarter EBITDA and revenue guidance fell short of analyst expectations even when factoring in improving user metrics.

Bottom line, Josey believes it will likely take time for Twitter to see advertising dollars flow in from improving engagement trends.

According to Salmon, Twitter's report demonstrated that people have become more interested in using the social media platform mostly for political reasons. At the same time, Twitter is working on improving its product, which also contributed to the user growth.

Twitter is also winding down its TellApart assets and other business segments, which are expected to create a "lag" in any revenue recovery. But the analyst remains optimistic Twitter could see revenue growth next year. However, the analyst believes the stocks' valuation remains "a challenge," although at the end of the day, the "story is getting more interesting."

Cowen's John Blackledge maintains an Underperform rating on Twitter's stock with an unchanged $12 price target.

According to Blackledge, Twitter's better-than-expected revenue and EBITDA metrics and 9 million MAU net additions aren't enough to budge on his rating. The analyst believes the surprises in the report are overshadowed by management's guidance moving forward.

The analyst said Twitter's second-quarter revenue guidance of $442 million to $548 million is 10 percent below consensus estimates at the midpoint and an 18 percent year-over-year decline. Also, the company's EBITDA guidance for the second quarter of $95 million to $115 million is 24 percent below estimates at the midpoint.

Given the poor outlook for the second quarter, the analyst believes there are still signs of continued deterioration in the ad business, and the trajectory of the overall company "remains challenged."

Helfstein noted, for some investors, Twitter's 8 percent gain on Wednesday is a surprise since the company's second-quarter guidance came in below the Street's estimate. But there are some counter-points to support the gains, including a belief that the guide merely represents a "worst case scenario."

However, the analyst highlighted the competitive environment remains "challenging." Specifically, until advertisers can come to appreciate ROI gains from CPE declines (i.e., more engagements for the same or lower price), then Twitter will lose share of experimental budgets to Facebook Inc FB's Instagram, Pinterest and others.

Over the longer term, it is unclear if Twitter can "break into core ad budgets" with limited scale as opposed to the much larger peers.

According to Paulson, Twitter's first-quarter report was "better-than-feared," and one positive quarter of usage growth isn't necessarily reflective of a trend. Also, the positive aspects from the report are offset by the second-quarter outlook, which is short of expectations.

Paulson believes it is prudent for investors to remain on the sidelines, especially at a time when Twitter's own management is calling for its revenue growth to "meaningfully lag" usage growth this year.

Goldman Sachs' Heath Terry maintains a Buy rating on Twitter's stock with an unchanged $20 price target.According to Terry, Twitter could realize "significant value" out of its user base, engagement, data and content. Given the growth of these users in the first quarter, the analyst sees a favorable risk to reward profile in owning Twitter's stock moving forward.