Twitter Inc’s Fundamentals Improving, But Peter Stabler Expects Share Losses to Continue

Peter Stabler: 3Q earnings mark a step forward but challenges still remain.

Twitter Inc (NYSE:TWTR) shares closed 7% higher today, after the social networking giant reported solid third quarter results, which showed better user and advertiser engagement, and higher cost containment.

Specifically, the company reported Q3 revenue of $589.6 million, beating consensus estimates of $587 million. Twitter’s main money stream, ad revenue, hit $502.8 million, versus the $498 million expected by analysts. EBITDA and NEPS of $207 million/$0.10 handily exceeded consensus estimate of $158.7 million/$0.06, respectively.

In reaction, Wells Fargo analyst Peter Stabler raised his price target on TWTR to $19 (from $16), while remaining cautious on shares. (To watch Stabler’s track record, click here)

Stabler commented, “We expect slow, continued progress on ad revenue performance as management focuses on video formats, targeting and measurement, but we expect TWTR to remain an industry share donor for the foreseeable future given the depth of the competitive landscape. While engaged users are likely appreciating product improvements, we believe the service remains too challenging for many consumers, and expect annual audience gains to remain modest.”

The analyst continued, “TWTR management has aggressively managed operating expenses, yielding significant EBITDA beats and better than anticipated margin expansion. However, we expect margin gains from this point forward to be more challenging, where we note comments regarding hiring and reinvestment. Though TWTR’s 40-45% long-term target remains intact, we believe relatively modest annual growth could limit significant near-term gains from here.”

Bottom line: “Though we see TWTR as making steady progress, we expect meaningful share losses to continue.”

Wall Street is not rooting for the internet stock’s success, earning a weak analyst consensus rating. TipRanks analytics exhibit TWTR as a Sell. Based on 20 analysts polled by TipRanks in the last 3 months, 13 maintain a Hold on Twitter stock while 7 issue a Sell. The 12-month average price target stands at $15.50, marking a nearly 10% downside from where the stock is currently trading.


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