Bank Of America: Twitter's Account Suspensions Will Put Pressure On MAU Growth

Twitter Inc TWTR plunged 9 percent Monday on news that management is sustaining an aggressive rate of account suspension.

Investors weren't pleased about the potential implications on active-user metrics, but some Street analysts forecasted no impact on second-quarter revenues.

The Rating

Bank of America Merrill Lynch analysts Justin Post and Ryan Goodman maintained an Underperform rating on the stock with a $27 price target.

The Thesis

Although anticipating positive earnings commentary on the platform clean-up effort, the analysts aren’t hopeful for a wholly positive second-quarter report.

“While we agree that the clean-up efforts are a long-term positive for the platform, we still have concerns on Twitter’s reach and anticipate pressure on MAU [Monthly Active Users] growth as suspension headwinds continue,” Post and Goodman wrote in a Tuesday note.

Nonetheless, their ad checks indicate improvement in advertiser perception of and spend on Twitter. The favorable ad environment doesn't abate longer-term fundamental concerns, though.

“While we have underestimated the 2018 rebound in Twitter advertising revenue growth and do not expect recent account closures to impact 2Q revenues, we remain cautious on user growth trends versus social peers and would expect revenue growth to converge toward daily user growth over time,” the analysts wrote.

Price Action

At time of publication, shares were trading up marginally on the day at $44.18.

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