Here Are Nine Reasons Twitter Shares 'Should Work'

• Twitter Inc TWTR shares have lost 18 percent year-to-date, declining steadily after hitting a high of $52.87 on April 7.
• Axiom's Victor Anthony maintained a Buy rating on the company, while reducing the price target from $37 to $36.
• Although Twitter’s shares plunged on reduced guidance, the company seems to have all the tools that could support its shares, Anthony said.

Twitter reported its 3Q15 results ahead of expectations. While the company’s revenue was 1 percent higher than Axiom's estimate, adjusted EBITDA beat by 20 percent. Management did indicate that certain costs, which were not specified, had been pushed from 3Q into 4Q.

Advertising revenue growth ex-FX came in at 67 percent, down from 71 percent in 2Q15 and 78 percent in 1Q15. Reported O&O ad revenue growth, provided for the first time, grew 42 percent y/y, while Off-Network revenue grew “significantly faster off a lower base,” analyst Victor Anthony mentioned.

Twitter reported core MAUs of 307 million, representing growth of 8 percent y/y, which is a decline from the 12 percent in 2Q15. This was, however, in-line with Axiom's estimate.

The mid-point of the company’s 4Q revenue guidance came in 5 percent below consensus. Anthony stated that the reasons for the shortfall were vague, “although we suspect slower O&O growth.” The mid-point of adj. EBITDA guidance was 17 percent below consensus, reflecting lower revenue, cost shifts from 3Q and increased marketing spend.

Twitter’s shares sold off following the weak guidance. Anthony highlighted that this was the second time this year that the company had reduced its guidance. Moreover, user growth remains tepid. He added, however, that “tools are now in place that should support share price appreciation over the coming year.” These tools were enumerated as:

1. Management depth
2. A more streamlined org
3. Launch of Moments and the ad campaign
4. The Google search partnership
5. The DoubleClick partnership
6. Launch of the Promoted Moments ad unit, where demand seems to be robust
7. Monetizing against the logged-out users
8. Video ads
9. Ad loads increasing from the current 1/3rd

“An investment in TWTR today is a bet that management can execute against all of the above,” Anthony wrote.