‘Investors should brace themselves’: What Wall Street is saying after Twitter’s weak earnings

Twitter is still being outdone by its competitors for advertising spending.

The company on Tuesday reported second-quarter results that showed that revenue growth continued to slow. Revenue rose 20% year-over-year, to $602 million, down from a 60% pace in the same period last year.

Monthly user growth remained slow.

The company’s shares plunged 11% after these results, and several Wall Street analysts recommended that investors proceed with caution.

Following Verizon’s $5 billion acquisition of Yahoo earlier this week, and Microsoft’s purchase of LinkedIn in June, there’s speculation that Twitter could be the next takeover target. However, CEO Jack Dorsey said the company would rather grow on its own.

Here’s what analysts said:


Goldman: BULLISH

Rating: Buy

Price target: $21

Comment: “We continue to see significant value in Twitter’s user base, content, and interaction data despite the company’s difficulty in realizing that value. While the positive engagement trends didn’t translate into incremental monthly-active-user growth this quarter, with incremental video content, major events, and a seasonal tailwind, we believe 3Q could potentially deliver on that front.”


JPMorgan: NEUTRAL

Rating: Neutral

Price target: $16 (cut from $18)

Comment: “Though we think TWTR has potential to improve growth by tapping into video ad budgets over time with its live streaming initiatives, we think the window of opportunity is closing as users and budgets move to competitors. We would need to see significant acceleration in revenue and users to be more optimistic on TWTR.”


BMO: NEUTRAL

Rating: Market perform

Price target: $18

Comment: “Although user growth was ahead of expectations (driven by international strength), growth is still not robust. Furthermore, US monetization is increasingly challenged and we model year-on-year declines in average revenue per user (ARPU) for 3Q and 4Q.

“Active advertiser count is no longer expected to grow and this makes revenue growth tethered to spending per advertiser, which has been challenged by cannibalization of legacy ad products (such as Promoted Trends) in favor of newer formats, such as video.”


Stifel: BEARISH

Rating: Sell

Price target: $9 (cut from $10)

Comment: “Management identified opportunities for incremental ad budgets from online video and direct response channels, but capturing this spend will likely require multiple quarters and development of new products, features, and functionality.

“With the company’s hopes for a turnaround hinging on products that have not yet launched, we think investors should brace themselves for continued weakness in Twitter shares.”


Raymond James: NEUTRAL

Rating: Market perform

Price target: NM

Comment: “We continue to believe Twitter remains early in its turnaround plan and while optimistic on new initiatives (e.g., streaming content deals, new ad monetization), we expect these initiatives to take a while to ramp, and as such we expect shares to remain range bound near term.”


Oppenheimer: NEUTRAL

source
Reuters/Lucas Jackson

Rating: Perform

Price target: NA

Comment: “We are maintaining our Perform rating on TWTR after the company guided 3Q revenue 12% below the Street on weaker new advertisers and continued pricing declines. The guidance implies flat quarter-on-quarter revenues, slowing to 5% year-on-year vs. 20% in 2Q, which management blamed on slowing advertiser count.

“In addition, TWTR lacks certain measurement and performance capabilities of other social media platforms.”


Nomura: NEUTRAL

Rating: Neutral

Price target: $13

Comment: “Our overarching view is that the competitive landscape across internet advertising continues to tilt in favor of the largest platforms …

“The near-term rollout of new live video content could benefit user growth and engagement. However, Twitter may struggle to re-accelerate revenue growth, as the economics of these partnerships remains an open question.”


Macquarie: NEUTRAL

Rating: Neutral

Price target: $17

Comment: “While there are many issues impacting TWTR’s performance, at a high level it comes down to this: it must improve its core audience engagement issues before its creators begin to leave the platform. We have not yet seen any data to indicate that the creators are leaving, therefore, in our opinion, there is still time to address the problem, but we do fear that time is not TWTR’s side.”


JMP: NEUTRAL

source
Anthony Quintano/Flickr

Rating: Market perform

Price target: N/A

Comment: “Increased competition, which we believe is primarily from Instagram and Snapchat, coupled with relatively high [cost per thousand] and needed improvements to its measurement tools (to prove ad return on investment) limited Twitter’s ability to gain share of social ad budgets in the quarter and given our view that proposed improvements are likely several quarters out, we believe it is likely to take some time for advertising growth to materially ramp.”


Citi: NEUTRAL

Rating: Neutral/high-risk

Price target: $16

Comment: “Importantly, the revenue issues at Twitter appear to be company specific rather than a reflection of the macro/ad market and we therefore would not be quick to judge Twitter’s results as a read-through for Facebook and other peers.

“Management remains optimistic that consumer and advertiser product initiatives recently launched or in the pipeline will improve user growth, user engagement, and monetization, though the timing and impact remains uncertain in our view.”


Deutsche Bank: BULLISH

Rating: Neutral/high-risk

Price target: $22

Comment: “Stepping back from the metrics, the company is in the midst of a challenging turn-around under Jack Dorsey, and we expect a few more quarters before seeing stabilizing revenue. However, Twitter remains the central mobile player in real-time content (not Google, Facebook or Snapchat), and we think there is strategic value in that position.

“LinkedIn had stalled user growth and revenue deceleration issues, and yet was acquired for 5.4x forward revenue vs. TWTR’s current 3x. We previewed 2Q wouldn’t be a catalyst, got what we expected and would add to positions as we see trends stabilizing and potentially improving from here.”


CLSA: BEARISH

Rating: Underperform

Price target: $16

Comment: “We view that the company is still going through product and revenue transitions whereby key operating and financial metrics will likely be volatile in the near term. That said, we are lowering our 2018 revenue estimate by 12% and Ebitda by 6%.”


DON’T MISS:

source
Reuters/Stefano Rellandini

The 10 best stock analysts you should have listened to so far in 2016 »