Twitter Inc (TWTR): The Risk-Reward Appears More Favorable to Potential Suitors


In a research report released Tuesday, MKM Partners analyst Rob Sanderson reiterated a Neutral rating on shares of Twitter Inc (NYSE:TWTR), while cutting the price target from $18.00 to $16.00, which represents a slight downside potential from current levels.

Sanderson explained, “Advertisers have been pulling back on allocation to TWTR. Despite recent improvement in engagement metrics, it will take time (i.e., 6-12 mos.) to recalibrate media mix models for brand advertisers and agencies. Management has seen a clear acceleration in competitive intensity since mid-January. It appears that a competitor is offering cost per video view guarantees at very low prices. Snapchat appears to be the only platform with ad loads low enough to do this.”

That said, “We are updating our estimates on TWTR following a disappointing quarter for financial performance. Management continues to highlight improving engagement metrics, with four quarters of accelerating DAU growth, improving Tweet impression, and higher user active minutes. We are lowering estimates across the board, with revenue below the midpoint of a very wide range for Q1. While we do not expect the company will be acquired, we think valuation continues to be held up partially on strategic value and possibility of a takeover. With enterprise value falling below $10bn and momentum with key engagement metrics, the risk-reward becomes more attractive to potential suitors, in our view.”

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Rob Sanderson has a yearly average return of 5.5% and a 68% success rate. Sanderson has a -8.6% average return when recommending TWTR, and is ranked #697 out of 4490 analysts. 

Out of the 42 analysts polled in the past 12 months, 4 rate Twitter stock a Buy, 25 rate the stock a Hold and 13 recommend a Sell. With a downside potential of 7%, the stock’s consensus target price stands at $15.26.