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The Positives And Negatives From Twitter's Q1 Earnings Print

The Positives And Negatives From Twitter's Q1 Earnings Print

Twitter Inc (NYSE: TWTR) reported first-quarter results highlighted by a top- and bottom-line beat while monthly active users (MAUs) exceeded expectations of 318 million at 330 million. Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

  • Nomura Instinet's Mark Kelley maintains a Neutral rating on Twitter's stock with a price target lifted from $31 to $33.
  • Wells Fargo's Robert Coolbrith maintains at Overweight, price target lifted from $33 to $40.
  • Morgan Stanley's Brian Nowak maintains at Equal-weight, price target lifted from $31 to $32.
  • Canaccord Genuity's Maria Ripps maintains at Hold, price target lifted from $32 to $42.
  • Guggenheim Partners' Michael Morris maintains at Buy, price target lifted from $41 to $44.
  • Aegis Capital's Victor Anthony maintains at Buy, price target lifted from $41 to $48.

Twitter's stock rose more than 15 percent in Tuesday's session and shares traded around $39.76 at time of publication.

Nomura: 'Solid' Q1

Twitter's first quarter was "solid" as U.S. ad revenue growth accelerated from 24 percent year-over-year to 26 percent year-over-year, Kelley said in a research report. Total ad revenue rose 18 percent from last year to $679 million, which beat expectations of $662 million.

Management's second-quarter revenue guidance of $770 million to $830 million is short of the consensus estimate of $818 million. However, the company beat the high-end of its guidance in the past two quarters so the most recent outlook could be conservative.

See Also: President Trump Meets With Twitter CEO Jack Dorsey, Looks Forward 'To Keeping An Open Dialogue'

Wells Fargo: Positives And Negatives

Coolbrith highlighted a few different aspects.

On the encouraging side: 1) average MAU fell 2 percent year-over-year due to a "clean-up" of the platform but rose 3 percent from the past quarter, 2) U.S. ad revenue accelerated despite a difficult growth comparison and 3) operating expenditure growth of 18 percent came in below management's full-year outlook of 20 percent.

On the other hand, the three concerns include: 1) international ad revenue decelerated from 25 percent in the fourth quarter to 14 percent, 2) management expects a more muted GAAP EBIT performance moving forward and 3) management needs to focus more on its brand and video advertising instead of the direct response opportunity.

Morgan Stanley: Bigger Picture Debate

Nowak said the bigger picture debate surrounding Twitter's stock extends beyond a single earnings report. The company's ability to sustain a mid-high teens year-over-year ad revenue growth through 2020 is "key to determining" the appropriate multiple on Twitter's stock. The company is working on improving its product suite and better targeting options for advertisers which will be closely watched.

The report did show international ad revenue (50 percent of total revenue) fell short of Nowak's estimates by 8 percent and ongoing underperformance poses risk to the stock's upside.

Canaccord: Platform Health Top Priority

Twitter management emphasized the health of its platform remains important and an effort is underway to identify rule violations and abuse, Ripps said in a research report. Nearly 40 percent of violating tweets were removed automatically and these "Health" initiatives can be considered a growth initiative.

A safe platform results in a more "positive" community and supports user and engagement expansion, according to the analyst.

See Also: Wedbush's Initial Reaction To Twitter's Q1 Results: 'Major Feather In The Cap For Bulls'

Guggenheim: Reasons To Be Positive

Management maintained its incremental opex spend at 20 percent year-over-year and the first quarter showed some encouraging metrics, Morris said in a research report. Specifically, the quarter showed higher monetizable daily average user engagement and double-digit ad growth. Over the long term, ongoing strategic investments to support a "healthy, sustainable ecosystem" will generate value for investors.

Management also offered an update to support events, interests and topics to drive engagement and user retention. This will help improve ad relevance and better scale the platform, add new users that can be monetized and ultimately lift profit.

Twitter continues to believe the advertising aspect of the business is "demand, not supply" which implies the potential to scale existing engagement levels and ad volume growth, according to Morris. This positive potential outlook is not factored into Twitter's stock at current levels.

Aegis: Trends To Monitor

Investors may want to monitor four trends that could have a negative impact on Twitter, Anthony said in a research report. These include:

  1. Momentum at rival social media platform Snap Inc (NYSE: SNAP) could result in Twitter losing ad market share;
  2. Potential regulatory changes could result in a negative impact on Twitter's ad targeting capabilities;
  3. The competitive landscape could result in management deciding to increase its spending above expectations; and
  4. Social media platforms were turned off following recent international catastrophic events.

Latest Ratings for TWTR

Nov 2020Morgan StanleyMaintainsEqual-Weight
Nov 2020Canaccord GenuityMaintainsHold
Oct 2020OppenheimerMaintainsOutperform

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