What Spooked Twitter (TWTR) Investors Today; Top Analyst Weighs In

Baird's Colin Sebastian is reassured to see solid key metrics that led to Twitter's outclass on Q1 expectations- but here's why he remains sidelined;


Twitter (NYSE:TWTR) unveiled the curtain on its earnings party this morning with a beat that kicked off 2018. However, shares are slipping about 4% in trading today as the company has warned of sluggish growth in its conservative outlook for the back half of the year.

Top analyst Colin Sebastian at Baird praises a track record that sees one more outclass come out of the Twitter machine, thanks to user and engagement trends on the rise. Yet, the analyst acknowledges a guide that faces “some uncertainty in the face of toughening comps and near-term privacy regulations (e.g., GDPR), and could prove to be conservative.”

In reaction to the print, the analyst remains cautious, but positive on the sidelines, maintaining a Neutral rating on TWTR stock with a $33 price target, which implies a close to 13% upside from current levels.

For the first quarter, on back of international strength, revenues shot up 21% year-over-year to $665 million, trouncing the Street’s play-it-safe forecast of $605 million. U.S. revenues reached $347 million, a nice recovery from previous declines, soaring 2% year-over-year. Meanwhile, the company delivered a meaningful International revenue outclass that rocketed 53% year-over-year to $318 million on back of 61% year-over-year growth in Japan. For context, the analyst underscores Japan as Twitter’s second most important market, taking an 18% slice of its total revenue.

Advertising revenues for the quarter climbed 21% year-over-year- momentum steamrolling forward from the mere 1% year-over-year seen in the fourth quarter of 2017, far ahead of consensus estimates. Non-GAAP EBITDA likewise handed over an outperformance, reaching $244 million that towered above the Street’s $206 million as well as the company’s own guide of $185 to $205 million- mostly thanks to its revenue beat. Non-GAAP EPS of $0.16 rode on back of a lesser tax rate ahead of the Street’s $0.12 forecast.

Audience growth [is] showing signs of improvement,” cheers Sebastian. Twitter hit 336 million in monthly active users (MAUs), flying right above consensus of 334 million, and daily active users (DAUs) increased 10% year-over-year in the first quarter.

After the company turned over a guide far surpassing the Street, Sebastian is jumping his second quarter revenue forecast from $629 to $698 million and EBITDA from $215 to $263 million. For context, Twitter’s second quarter adjusted EBITDA outlook range points to revenues between $645 and $716 million, marking 19% year-over-year growth at the midpoint.

Likewise, “Product improvements driving noticeable engagement tailwinds,” continues the analyst, who points out better sales execution from the company as well as a product development pace that has absolutely struck a positive chord with users and advertisers alike. That said, comments from the TWTR team indicate sequential trends in the back half of the year may show a more sluggish growth rate than the first quarter momentum might seem to exhibit.

Bottom line, “Key metrics are encouraging, conservative cadence for near-term growth could limit upside. Twitter reported another quarter of top and bottom-line outperformance, as the company continues to benefit from improving usage/engagement trends and expense controls following 2017 restructuring and product enhancements. While we remain encouraged by top-of-funnel metrics (e.g., DAU growth) and improvements in advertiser ROI, management commentary around 2H18 sequential growth expectations (tougher comps) and uncertainty around GDPR/privacy impact may limit near-term upside in shares,” Sebastian concludes.

Colin Sebastian has a very good TipRanks score with a 74% success rate and an impressive ranking: #13 out of 4,744 analysts on the Street. Sebastian realizes 24.9% in his yearly returns. When recommending TWTR, Sebastian earns 0.0% in average profits on the stock.

TipRanks showcases the comeback social media platform has Wall Street mostly cautious on its prospects. Out of 25 analysts polled in the last 3 months, 4 are bullish on TWTR, 15 remain sidelined, while 6 are bearish on the stock. With a slight loss potential of 1%, the stock’s consensus target price stands at $29.00.