Cantor Fitzgerald Downgrades Twitter to Sell from Hold, Maintains $32.00 PT

In a report published Wednesday, Cantor Fitzgerald analyst Kip Paulson downgraded Twitter, Inc. TWTR from Hold to Sell, maintaining its $32.00 price target. According to the report, TWTR's valuation is found to be excessive and currently seeing materially more downside than upside, despite the analysts traditional reservation of Sell rating to business models with structural challenges. TWTR remains one of the fastest-growing companies and one of the few key plays on the social internet, but at the current valuation Facebook and Google are preferred. “A quick look at the make-up of consensus estimates reveals that analysts whose banks were involved with the TWTR IPO generally have estimates that are lower than those not involved,” the report noted. “For example, FactSet's overall consensus 2014 revenue is $1,118M (vs. ~$1,041 for banking analysts) and consensus 2014 EBITDA is $138M (vs. ~$98M for banking analysts). For the stock to work materially from current levels, it would require beating not only consensus estimates, but the more aggressive ones from non-banking analysts as well, in our view.” As for valuation, TWTR shares trade at 30.8x EV/revenue and 261.5x EV/EBITDA on their FY14 estimates. The $32.00 price target is derived using a 5 year DCF, which assumes a perpetual growth rate of 4 percent and a WACC of 12 percent, consistent with Facebook and other large-cap internet names. Some risks include less than expected selling pressure from lock-up expirations, accelerating user growth, engagement and/or monetization and changes in the competitive landscape. TWTR closed Tuesday at $61.46.