Why Analysts Are Mixed on Twitter After Earnings

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Twitter Inc. (NYSE: TWTR) looked like it had turned a corner since pushing close to an all-time low earlier this spring. However, its most recent earning report seemingly took away all the positive momentum. Analysts weren’t exactly positive about Twitter following the report.

24/7 Wall St. has included some highlights from the earnings report, as well as what analysts are saying after the fact.

The company said that it had $0.08 in earnings per share (EPS) and $574 million in revenue, which compared with consensus estimates from Thomson Reuters $0.05 in EPS and revenue of $536.62 million. In the same period of last year, the social media company posted EPS of $0.13 and $601.96 million in revenue.

Average monthly active users (MAU) totaled 328 million for the quarter, up 5% year over year, as well as compared to 328 million in the previous quarter. Average daily active users (DAU) grew 12% from last year, marking the third consecutive quarter of double-digit growth.

In terms of guidance, Twitter expects to see EBITDA in the range of $130 million to $150 million, with a margin in the range of 25% to 26% for the third quarter. The consensus estimates call for $0.07 in EPS and $568.63 million in revenue for the coming quarter.

Merrill Lynch has an Underperform rating with a $17 price target. The firm detailed in its report:

Twitter is an investment in increasing social and mobile Internet usage, and could become the leading platform for real time multi-media distribution. However, slower user and ARPU growth than peers suggests Twitter’s product strategies are not driving anticipated improvements. Also, video may prove to be a more competitive market for the company and growing EBITDA margins over product investment may cause company to fall behind competitors.

Oppenheimer has a Perform rating. It said in its report:

While management is making strides improving amount of video content, policing negative behavior, and simplifying the user experience, these efforts aren’t pulling through to the MAU/DAU metrics as quickly as the bulls had expected. We believe this trend indicates that structurally, Twitter remains a niche service (news, sports, political and financial research) and needs to see even greater platform improvements to drive mass adoption. At the same time, Twitter is competing for mobile ad dollars against an increasing number of players (Facebook, Alphabet, Snap and Pinterest). Management is making progress on paring cash opex, SBC, and improving data licensing revs; however, takeout thesis predicated on engagement, not EBITDA.

Wedbush maintained its Neutral rating with a $16 price target. The firm sees little progress toward attracting new users, which it believes is essential in order to generate advertiser demand going forward.

JMP Securities maintained its Market Perform rating. Although the firm says that it is incrementally positive on Twitter, it is still early in the company’s “turnaround.”

A few others weighed in on the stock:

  • Argus has a Hold rating.
  • Aegis Capital has a Sell rating with a $13 price target.
  • Barclays has an Underweight rating and raised its price target to $16 from $15.
  • RBC has an Underperform rating and raised its price target a dollar to $14.

Shares of Twitter were last seen at $16.75, with a consensus analyst price target of $15.82 and a 52-week range of $14.12 to $25.25.