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Michael Pachter Cuts LinkedIn, Twitter Targets

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Michael Pachter Cuts LinkedIn, Twitter Targets
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  • LinkedIn Corp (NYSE: LNKD) shares have lost 15 percent since January 5, while shares of Twitter Inc (NYSE: TWTR) are down 25 percent.
  • Wedbush’s Michael Pachter maintained Neutral ratings for both companies, and reduced their price targets.
  • The analyst commented on LinkedIn’s healthy results and weak guidance, as well as on Twitter’s expected Q4 figures.

LinkedIn

The price target has been reduced from $232 to $200.

LinkedIn reported its Q4 revenue at $862 million, ahead of the Wedbush estimate of $855 million and consensus expectation of $858 million. EBITDA stood at $249 million, also beating the Wedbush estimate of $212 million and consensus expectation of $217 million. The company’s EPS came in at $0.94, versus the Wedbush estimate of $0.75 and consensus expectation of $0.78.

Related Link: Pacific Crest's Confidence In LinkedIn Is 'Shaken,' But Thinks Selloff Is Overdone

LinkedIn’s quarterly beat was “overshadowed by disappointing guidance,” Pachter said. The company guided to a modest sequential decline in revenue and a sharp decline in EBITDA, reflecting EBITDA margin contraction in Q1.

Although the company’s guidance included 20-22 percent revenue growth and 20-25 percent EBITDA growth, these were short of consensus estimates. Investors seemed “unimpressed” by the LinkedIn’s plans to invest in driving growth in 2016, and sent shares down sharply, the analyst mentioned.

Pachter commented that LinkedIn does not appear to be ready to generate an EBITDA figure that would suffice to support “its very high EV/EBITDA multiple.” He added that the company appears “almost complacent about delivering only very modest operating leverage, with EBITDA expected to grow only 200 – 300 bps more than revenue growth.”

Twitter

The price target has been reduced from $30 to $20.

Twitter is scheduled to report its 4Q15 results on February 10. Pachter expects positive ad pricing trends to result in Q4 revenue towards the high-end of guidance. He added, however, that user growth is likely to have been stagnant.

The estimates are:

  • Revenue of $715 million, ahead of consensus expectation of $710 million
  • Adjusted EBITDA of $175 million, in-line with consensus
  • EPS of $0.10, lower than consensus expectation of $0.12

In the report Wedbush noted, “We believe Twitter likely saw an uptick in ad pricing, with increased engagement (up 165% y-o-y in Q3) offsetting lower CPE to the consumer (down 39%) due to the shift to auto-play from click-to-play video ads. More importantly, we do not think that Moments drove a meaningful increase in users, as much of the content remains outdated or irrelevant.”

Pachter believes that Twitter would not guide to a significant improvement in EBITDA contribution margin, and expects the focus to remain on MAUs. He added, “We expect only modest sequential user growth in 2016, likely 1% per quarter.”

Latest Ratings for TWTR

DateFirmActionFromTo
Feb 2017CitigroupDowngradesNeutralSell
Feb 2017Loop CapitalDowngradesHoldSell
Feb 2017UBSDowngradesNeutralSell

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