Why Twitter Is A Buy And Worth $61 Per Share

Brean Capital initiated coverage on Twitter Inc TWTR Monday with a Buy rating and $61 price target.

Analyst Sarah Hindlian believed "that Twitter is in the first inning of a long game-one that" was not anticipated to "be linear, but is likely to yield positive results."

Hindlian also believed "new products for mobile app development, online video, syndicated ads, and more, are just ramping, while the company improves the user experience and starts to monetize the vast logged-off user base, leading to potential upside to come."

The analyst felt that comparisons to Facebook Inc FB missed the point as the companies offered "completely different products and do not have equal users."

Different Platforms

While Facebook allowed for users to connect with friends, Twitter allowed users to "follow ‘important' people, global events, topics, and conversations that are relevant or interesting to them, without the need to ever be active," according to Hindlian.

The analyst concluded, "We neither expect Twitter to achieve user metrics parity with Facebook nor believe Twitter needs to reach parity, because they are extremely different businesses."

The Numbers

Monetizing logged-off users was seen a significant opportunity for Twitter along with syndicated ads and its Fabric platform.

The firm's $61 price target was based on a DCF analysis that yielded a 17.6x forward EV/FY15 Sales multiple and 71.5x forward EV/FY15 EBITDA multiple, which compared to the company's current consensus multiples of 12.1x forward EV/FY15 Sales and 49.1x forward EV/FY15 EBITDA.

Hindlian believed the premium valuation was "warranted on early and ramping growth."

Twitter closed at $46.43 Monday, down 0.49 percent.