Twitter Is Controversial, But History Shows Now's The Time To Buy: Deutsche Bank

In a report published Wednesday, Deutsche Bank analyst Ross Sandler and his team look into Twitter Inc TWTR, and conclude that, although they expect further implosion, they “see signs of life.” Consequently, they reiterate a Buy rating and $60.00 price target on the stock.

According to the note, the experts think investors are preparing for yet another challenging quarter. However, just like in the two previous bear-raids, the firm does not see reality “as nearly as bad as current sentiment.” While the street is anticipating “negative MAU adds” and “in-line and guide-down revenue,” both these metrics could come in ahead of expectations.

Twitter’s story “is not without controversy,” the analysts continue. Nonetheless, they remain “firmly in the bull camp as the stock is off 40% in 3-months, the pace of new product development is better than ever (although TWTR hasn’t solved the broader user growth issue), and outside of the CEO departure the rest of management is largely intact.”

Into Earnings

For the current quarter, investors are projecting substantial MAUs contraction and revenue in-line with the management’s guidance of $470 million to $485 million.

Notwithstanding, Deutsche Bank’s checks suggest MAUs “won’t be as bad as feared (DB 304m ex-SMSFF, 312m incl), and revenue may actually be fine in 2015.”

All About History

The analysts at Deutsche Bank acknowledge that Twitter is a highly controversial stock, but a look at history suggests that periods of bearishness provide attractive entry point for long-term investors.

The experts believe “the direct response advertising dollars should start flowing through in size in 2016 once all the measurement plumbing is in place, which should prop up growth rates.”

They add, “The new user retention problem is a much harder fix, and one that we are admittedly losing some faith around, but at a $24B market cap, with Periscope and Vine potentially adding meaningful to the EV, we don’t need it.”

Thus, they see the downside risk from here at 10 percent, while the upside potential could surpass 50 percent.