Twitter Inc (TWTR) Shows Off Rising Momentum in Important Areas, Cheers Top Analyst

Baird praises TWTR's improved audience engagement that benefited from product/ad format changes.


Twitter Inc (NYSE:TWTR) came dressed to impress for its third quarter showcase, with investors sending thundering applause across the Street and shares subsequently firing up almost 15% through the ceiling.

Top analyst Colin Sebastian at Baird acknowledges an exciting top-line earnings beat against a conservative guide “despite tougher comps.”

As the social media player tries to make a short-term comeback in terms of user growth and monetization prospects, the analyst continues to survey the company from the sidelines for now, maintaining a Neutral rating on TWTR stock with a $17 price target, which implies a 13% decrease from current levels.

For the third quarter, Twitter posted a 4% year-over-year dip to $590 million in revenue, indicating an improving from the second quarter’s 5% annual drop and an outclass against the Street’s estimate of a 5% year-over-year drop to $587 million. Additionally, Twitter’s revenue landed at the high end of implied revenue outlook calling for a range between $500 to $600 million. “Revenue outperformance was driven by better sales execution, continued strength in video, and improving DR ad momentum,” Sebastian writes.

Ad revenues may have experienced an 8% year-over-year decline to $503 million, but Twitter’s performance nonetheless topped the Street’s estimate of $498 million, thanks to spend from top 100 global advertisers seeing a 23% year-over-year surge. Non-GAAP EBITDA of $207 million was quite a strong point of the print, rising high past consensus of $158.7 million and the guide of $130 to $150 million, which the analyst attributes to revenue upside coupled with “a shift in timing of certain expenses into 4Q.”

Sebastian notes, “Audience growth reaccelerates,” with monthly active users (MAUs) of 330 million meeting consensus expectations and exhibiting a 4% annual climb coupled with daily active users (DAUs) hitting a 14% year-over-year rise.

For the fourth quarter, the TWTR team set expectations for adjusted EBITDA between $220 and $240 million, which would signify a 35% to 36% margin on GAAP revenue, outperforming consensus EBITDA of $197.3 million. The only less strong point of the print points to an implied revenue outlook between $611 and $685 million, just under $693 million. Twitter anticipates to be GAAP profitable in the fourth quarter as long as earnings reach the tail-end of the adjusted-EBITDA range. Sebastian adds, “Importantly, excluding TellApart, the high end of guidance implies a potential return to revenue growth.”

Bottom line, “At first glance, Q3 results indicate improving momentum in several key areas, including audience engagement (accelerating DAU growth) and moderating revenue declines, which suggests improvements to product and ad formats are beginning to resonate with users/advertisers. While the earnings beat was due in part to expense timing shift, we still expect shares to trade meaningfully higher given clear signs of improving execution,” contends the analyst.

Colin Sebastian has a very good TipRanks score with a 74% success rate and a high ranking of #21 out of 4,700 analysts. Sebastian garners 23.5% in his yearly returns. When recommending TWTR, Sebastian earns 0.0% in average profits on the stock.

Wall Street’s sentiment echoes with a lot of negative reservation when it comes to the internet stock, as TipRanks analytics demonstrates TWTR as a Sell. Based on 20 analysts polled by TipRanks in the last 3 months, 13 maintain a Hold, while 7 issue a Sell on the stock. The 12-month average price target stands at $15.50, marking a nearly 21% downside from where the stock is currently trading.