Brean: 'Growing Pains Continue' For Twitter

In a report published Wednesday, Brean Capital analysts maintained a Buy rating on Twitter Inc TWTR, while reducing the price target from $61 to $55, after the company reported its 1Q15 results. Prior to this, Twitter's results were leaked via tweets! Twitter reported a weaker-than-expected quarter and outlook, with changes in pricing options and engagement measurements adversely impacting the quarter and guidance. In the report Brean Capital noted, "Twitter shifted its pricing to "CPx" from CPE, which negatively impacted revenues by ~$5mn. Furthermore, the company changed what it considers an "engagement", also negatively impacting revenues, but we feel has created a more stringent standard." These changes indicate that Twitter is "seeking to become a higher ROI ad platform" that could attract "a greater number of larger budget advertisers" and the moves seem to be "correct strategic decisions," the analysts added. Although Twitter is likely to be a "long-term winner" in the digital ad market, event-driven advertising remains "largely foreign to branded advertisers," the analysts commented. The platform may need to cope with near-term limitations as the focus shifts to "gaining more mind share from the branded community - many of whom we believe are interested in using event-driven advertising, but have not yet clarified an event strategy." The report added that Twitter seems to be in the "early innings of a long game." The EPS estimates for FY15 and FY16 have been reduced from $0.38 to $0.34 and from $0.82 to $0.61, respectively.