MKM analyst Rob Sanderson weighed in today with mixed views on internet stocks Twitter Inc (NYSE:TWTR) and Netflix, Inc. (NASDAQ:NFLX). While the analyst concerned by Twitter’s user growth and engagement, he remains comfortable ahead of Netflix’s upcoming earnings. Let’s take a closer look:
Sanderson reiterated a Neutral rating on shares of Twitter, with a price target of $14, which represents a potential downside of 17% from where the stock is currently trading.
Sanderson noted, “TWTR shares have rebounded sharply, up over 20% since the MSFT announcement it would buy LNKD and shooting through our fair value estimate of $14. While MSFT-LNKD may have been the catalyst, and we don’t agree it is a comparable transaction; TWTR has also announced a slew of product enhancements and is building excitement for its NFL deal this fall. We continue to think TWTR has tremendous upside potential if it can cross-over to mass market utility, but are concerned by user growth and engagement.”
“We expect TWTR shares will remain highly volatile through the year. Sentiment remains weak, but short interest has moderated somewhat but still high at 9.8mn shares. Competing networks, specifically Instagram and Snapchat continue to show strong engagement trends and user growth. While different use cases, we do see this as a threat to TWTR in large categories like entertainment, celebrity and music. We think there would be mass-market appeal if the service was easy to use, TWTR has ample resources and there are interesting opportunities like the NFL on the table,” the analyst continued.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Rob Sanderson has a yearly average return of -5% and a 42% success rate. Sanderson has a 7.9% average loss when recommending TWTR, and is ranked #3565 out of 3990 analysts.
Out of the 31 analysts polled by TipRanks (in the past 3 months), 10 rate Twitter stock a Buy, 17 rate the stock a Hold and 4 recommend a Sell. With a return potential of 13%, the stock’s consensus target price stands at $19.00.
In addition, Sanderson reiterated a Buy rating on shares of Netflix, with a price target of $145, as the streaming leader will be reporting earnings on July 18, after market close.
The analyst noted, “NFLX is not a good read on demand trends for the group, but the stock reaction can be an indicator of sentiment toward good or disappointing results. The stock has been more controversial this quarter than most following disappointing Q2 guidance for the international ramp after a blow-out Q1 result. With heightened controversy, low expectations, the stock down 17% from last quarter (vs. NASDAQ down 4%) and down 31% from Q4 highs (vs. down 8%) and high conviction in the long-term, we like the set-up into results.”
“We have a very positive long-term view on the stock and believe the market cap has potential to triple in 4-5 years. The Bull case depends on significant subscriber growth and with little near-term earnings power, valuation is highly sensitive to adoption trajectory,” the analyst concluded.
According to TipRanks.com, Sanderson has a 6.7% average return when recommending NFLX. Out of the 28 analysts polled by TipRanks (in the past 3 months), 18 rate Netflix stock a Buy, 8 rate the stock a Hold and 2 recommend a Sell. With a return potential of 33%, the stock’s consensus target price stands at $121.04.