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Twitter Rallies On Q3 Beat; Analyst Says Investors Are Giving Company Time To Stabilize User Base

October 25, 2018 10:46 am
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Twitter Inc (NYSE:TWTR) reported a top-and-bottom-line beat in the third quarter Thursday morning.

A decline in monthly active users from a year ago seems like a one-time issue, Stifel's John Egbert said during a guest spot on CNBC's "Squawk Box." 

What Happened

Investors appear to be looking past short-term user issues in the reported quarter due to other "encouraging signs" from the business, Egbert told CNBC. (See the analyst's track record here.) 

For example, revenue came in 8 percent ahead of the Street's estimate and rose 29 percent from a year ago to $758 million. Much of the incremental revenue flowed through to the bottom line, where EPS rose from 10 cents a year ago to 21 cents and beat estimates of 14 cents per share.

Twitter's MAU decline in the quarter from 335 million last quarter to 326 million is attributable by Twitter's management team to Europe's GDPR along with a decision to "prioritize the health of the platform," Egbert said.

This appears to be a one-time event and mostly impacted accounts that weren't monetized in the first place, the analyst said. 

"Investors are buying into the fact that these health issues for the platform are important to the future viability of it," Egbert said. "Right now, [investors] seem a little bit more focused on the business."

Investors appear willing to give Twitter a few quarters to stabilize its MAU before losing patience, the analyst said. 

What's Next

Twitter guided its fourth-quarter adjusted EBITDA to a range of $320 million to $340 million and an adjusted EBITDA margin of 39-40 percent.

Twitter shares were trading up 16.3 percent at $32.03 at the time of publication Thursday. 

Related Links:

MKM Partners: Twitter Has Potential For 30-40% Annual Returns

Citron: Twitter Shares Could Hit '$52 Within 52 Weeks'

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