Following disappointing second quarter earnings reported Tuesday, July 26, Twitter Inc (NYSE:TWTR) is under hot water right now with investors, with the stock having fallen close to 15% on Wednesday. In light of a substantial slowdown in revenue growth, even with an upside to earnings compared to the Street’s projections, Wedbush analyst Michael Pachter maintains a Hold, but cuts his price target from $20 down to $14, marking a 14% decrease from where the stock is currently trading.
The social media titan came in this quarter with $602 million in revenue, a tad under the Street’s expectation of $607 million, coupled with adjusted earnings at $175 million- favorably over the Street’s estimate of $155 million, thanks to lower-than-expected operating expenses for the company. Meanwhile, Twitter indicates guidance in the range of $145 to $155 million. Even though earnings per share came in at $0.13, above the Street’s expectation of $0.10, Pachter finds this to be overshadowed by revenue falling short of consensus predictions.
Twitter’s revenue guidance for third quarter mirrors its second quarter guidance in the range of $590 to $610 million. However, its adjusted earnings in the range of $135 to $150 million notably fall under second quarter’s and, Pachter highlights, “well below the level delivered in Q2.” Consequently, in addition to a lowered price target, the analyst also reduced EBITDA estimates from $975 million down to $774 million.
Though Pachter understands Twitter remains in a favorable position as “‘the place to go’ for live broadcast,” he ultimately points to issues of complacency arising with current management regarding the status quo. The company cannot continue to rest on its laurels without focusing on addressing its difficulties with diminished user growth. Pachter dives in, explaining, “Until Twitter is focused on attracting new users, driving increased use by its existing users, and demonstrating its value proposition to people who don’t use the service, we expect it to grow very slowly. We think that its service is too complicated and difficult to use for the average Internet user despite multiple changes.”
Pachter recognizes there has been short-term appreciation in Twitter’s share price, but mainly credits this to talks of Twitter to be acquired, a further likening to the Yahoo conundrum. However, as far as the present circumstances appear, the analyst sees no obvious bidders, indicating if an acquisition were to occur, it would be more of a long-term deal.
We find it important that you take every new analyst’s notes with a grain of salt, as they often do successfully impact stock prices, but we advise wisely to take check their performance. According to TipRanks, Michael Pachter is ranked #3,341 out of 4,087 analysts, hitting a success rate of 50% with an average loss of 1.3% in his annual returns.
TipRanks analytics demonstrate Twitter to be a Hold. Out of 26 analyst ratings, 5 ratings are a Buy, 19 maintain a Hold, and the remaining 2 issue a Sell. The 12-month average price target stands at $18.44, marking a close to 13% upside.