Pair Trade? Evercore Just Downgraded Twitter, But Upped Facebook Estimates

In a report published Wednesday, Evercore ISI analyst Ken Sena mentioned the competitive convergence between Twitter Inc TWTR and Facebook Inc FB around content delivery and traffic referral. "What we conclude is that Facebook has developed perhaps the richest mobile news reading experience today, and all of the data we examine in this report, including propriety referral traffic analysis and broader examinations of scale, points to an expanding lead," analyst Ken Sena said. Evercore ISI downgraded the rating on Twitter from Buy to Hold, while reducing the price target from $49to $39. "Twitter management has been clear that targeting, creative and measurement are three areas where their business stands to improve, speaking specifically to its Direct Response efforts, but we believe this to be true for the platform more broadly." Although Twitter's DR efforts commenced only a year back and the company's retargeting should be benefitted by the recent TellApart acquisition, it is unlikely to be a strong match for Facebook's advertising and content delivery. "Moreover, as visibility around Twitter user growth has diminished, and we no longer have the same level of conviction we once did that Twitter under-monetizes on the basis of its overall influence (in advertiser speak, reach and frequency), the result is a more conservative view of Twitter's valuation and the company's long-term growth prospects," Sena wrote. Facebook's Instant Articles, launched on May 12, allows users to remain read articles while remaining on the social networking platform, rather than being redirected to a publisher site. Sena believes that the real break-through is the experience, with Facebook eliminating buffering time while "offering a host of other benefits to publishers." Just as in the case of video, Instant Articles could support "Facebook's content surgence with ad dollars naturally following." "We also see this trend loosely supporting FB's efforts around Open Compute and its Internet.org initiative as they spearhead speed and hosting capabilities for third party players. As such, we posit that Facebook's advantage is becoming as much about scale as design," the report added. Evercore ISI maintained a Buy rating on Facebook, while raising the price target from $95 to $105. Sena believes that the Instant Articles initiative could add $1.5bn in revenue to Facebook in 2019. The revenue estimate for 2016 has been raised by $600mm to $23.1bn, while the EBITDA estimate has been raised by 3 percent to $14.9bn.