Citi Cuts Pretty Much Every Estimate At Twitter

• Twitter Inc TWTR shares are down 44 percent in the last six months, declining steadily after April 24 when they were trading around $50.
• Citi’s Mark May revised the rating on the company from Neutral to Neutral / High Risk, while reducing the price target from $37 to $30.
• US ad revenue estimates for 2016 look unachievable, with ad load already in the 5 to 10 percent range, May said.

Analyst Mark May mentioned that Twitter’s shares have been under pressure after the company announced its 2Q results. A re-evaluation of the estimates for the company indicates that the earlier expected increases in monetization and the consequent impact on Twitter’s US ad revenues in CY16 may be difficult to achieve.

May commented, “Our analysis suggests current consensus forecasts imply a 45% improvement in monetization in the U.S. (and ~60% outside the U.S.), which may prove difficult given that one of the key recent levers in the U.S. – ad load – may already be in the 5-10% range. We believe this is unlikely.”

The analyst believes that it will be difficult for Twitter’s shares to achieve “sustained multiple expansion” till there is acceleration in user growth and/or revenue growth stabilizes.

The US ad revenue estimate for Twitter for 2016 has been reduced to $1,1681 million. Moreover, the company’s marketing costs are expected to increase next year due to a new marketing campaign for its Project Lightning.