Twitter Upgraded At RayJ: Why So Bullish?

Raymond James' Aaron Kessler has upgraded the rating on Twitter Inc TWTR from Market Perform to Outperform, with a price target of $25.

Kessler believes that the risk/reward on the stock is attractive and that although investor sentiment is still negative, execution on monetization and platform improvements could serve as catalysts.

"To the extent that user platform initiatives (can drive improved engagement and user growth, we believe this would be a clear catalyst. That said, we believe improvements would likely be 2H16 at the earliest," Kessler elaborated.

Monetization improvements are expected to be implemented in 2016, including the monetization of logged out users, the integration of DoubleClick and the roll out of new ad formats, all of which could serve as catalysts.

According to the Raymond James report, "While high SBC (stock based comp) has concerned investors, SBC has flattened on an absolute basis over the past few quarters and declined as a percent of revenues."

SBC is expected to contribute 24 percent of the net revenues in 2016 and 21 percent in 2017, while declining toward 10 percent over the longer term.

In addition, Kessler views the recent insider buying as a positive, although similar buying had occurred at much higher levels in 2015.

"Executive Chairman Omid Kordestani recently purchased 122,250 shares at $16.34 (~$2 million) while CFO Anthony Noto recently purchased 15,500 shares at $16.07 (~$250,000)," Kessler reported.

The revenue and EBITDA estimates for 2017 have been lowered to $3.83 billion and $1.07 billion, respectively.