Nomura analyst Mark Kelley today presses the negative case on Twitter (NYSE:TWTR), initiating a Reduce rating (AKA Sell) and a $31 price target on the stock, saying that he sees some downside risk to consensus estimates in 2019, particularly to the 1H monetization levels the Street is currently looking for. (To watch Kelley’s track record, click here)
In reaction, Twitter shares are dipping nearly 1.5% to $43.065 in Wednesday’s trading session.
Kelley stated, “In our recent conversations with folks in the advertising industry, we have heard some positive commentary and, while mostly qualitative, their remarks point to stability rather than a major shift in ad spend. As such, we look for continued and measured (but stable) MAU growth that closely mirrors consensus, but we have a hard time ramping our monetization as quickly as some might be expecting.”
The analyst continued, “Despite all of these positive trends apparent in the fundamentals of the business, we believe shares are stretched at current levels. TWTR is up 80% year to date and up 48% since the company last reported earnings on April 25. Short interest is fairly subdued relative to its history at only 8% of the float, and its 14-day RSI is slightly below of the group average of 54. These indicators all point to heightened expectations since 4Q17/1Q18 results that were broadly better than expected; however, we see the potential for some downside risk to 1H19 estimates, which we believe may bake in too much of a continuation of the growth exhibited in 1Q18, which makes for tougher comps as we progress throughout the year. Moreover, we believe that M&A, which has been a component of some bull cases, is unlikely at current levels.”
The majority of the Street sides with Kelley’s cautious take on the social media player, as TipRanks analytics demonstrate TWTR as a Hold. Out of 22 analysts polled in the last 3 months, 6 are bullish on Twitter stock, 13 remain sidelined, while 3 are bearish on the stock. With a potential downside of nearly 19%, the stock’s consensus target price stands at $35.05.