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Why Another Analyst Says to Buy Twitter

Twitter Inc. (NYSE: TWTR) recently has seen its shares take a dip, trading near their 52-week lows, but analyst firm Argus would argue that now is the time to buy the stock. The firm initiated coverage of Twitter with both a near-term and long-term Buy rating and a price target of $44. This is based on Argus’s view that Twitter retains strong growth characteristics, based on some key competitive differentiators.

One factor that sets Twitter apart from other social media is celebrity appeal. Many stars have taken to Twitter as a way to communicate with the media, their fans, or whomever else they choose. The constant and compact self-promotion by celebrities, and instant commentary from their followers, makes Twitter the arbiter of global conversation and community.

Twitter is an entirely different company than Facebook Inc. (NASDAQ: FB), and as such Argus sees upside potential. The upside lies in how Twitter can grow its user base and advertiser potential. Looking ahead, Argus believes that Twitter will be more able to monetize its core user base, leading to operating leverage and margin expansion in a more moderate monthly active user growth environment.

In the third quarter of 2014, Twitter posted revenues of $361 million, a 113% increase year-over-year and 16% sequentially. International advertising revenue growth was 164% year-over-year, compared to 88% growth in U.S. advertising revenue.

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For the full year 2014, Argus expects earnings per share of $0.10 and 105% growth in revenue to $1.37 billion. The firm also expects a gross margin of 69%. Thomson Reuters has consensus estimates of $0.09 in earnings per share and $1.38 billion in revenue. Looking specifically at the revenues, Argus expects data licensing to make up 12% of 2014 revenue and advertising to make up the remaining 88%.

For the 2015 fiscal year, Argus is modeling $0.34 in earnings per share and 70% in revenue growth to $2.32 billion, against consensus estimates of $0.34 in earnings per share and $2.29 billion in revenue. The analyst firm predicts a gross margin of 70% and that revenues will consist of 14% data licensing and 86% advertising.

For the 2016 fiscal year, the analyst firm expects $0.46 in earnings per share and 44% in revenue growth to $3.33 billion, on a gross margin of 71%. Data licensing is expected to comprise 16% of revenues and advertising to make up 84%.

Argus has forecast a long-term earnings per share growth rate of 12% for Twitter.

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Twitter has proven itself to be a volatile stock in its reaction to third-quarter earnings, bouncing around more than the broad market or technology universe. However, the company has attained profitability more rapidly than initially anticipated.

Shares of Twitter were up over 1% at $37.64 in the first hour of trading Monday. The stock has a consensus analyst price target of $50.39 and a 52-week trading range of $29.51 to $74.73. Twitter has a market cap of $23 billion.

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