Twitter (TWTR) shares climbed nearly 11% in the past four trading days, after the social media giant reported a strong second-quarter earnings report. Specifically, revenue increased 18% since last year, to $841 million, exceeding management expectations of between $770-$830 million. While operating income decreased 5%, monetizable daily users rose 14% since last year to 122 million users. Looking ahead to next quarter, the company guides for higher revenue (between $815-$875 million), but expects operating income to be lower than 3Q18.
In conjunction with the earnings results, Deutsche Bank analyst Lloyd Walmsley reiterates a Hold rating on TWTR stock, but raising his price target by a dollar, to $41. (To watch Walmsley’s track record, click here)
One of the oft-cited claims from Twitter’s standout second-quarter earnings was that the company’s ad products are seeing success. Indeed, Walmsley believes the ad business “appears to be firing on all cylinders,” as “ad enhancements and UI [resonates] with both advertisers and users.”
Another overwhelming storyline was the platform’s monthly active user (MAU) growth. Walmsley says the higher number of users and growth acceleration “makes [him] more comfortable in the future growth, especially ahead of the event packed 2020 year,” which includes the US election and Summer Olympics.
While the analyst believes “the quarter was strong” and there is little to “little to nit-pick” at, he says the company’s $841 million revenue “only beat the high end of the guide by +1%,” and was “less than what the buy side was expecting.” Further, operating income missed guidance, and Walmsley expressed some concern with Japan, where he says the company “flagged as stable but facing tougher comps, currency headwinds, and possible ad campaign air pockets.”
Looking ahead, the analyst is increasing his estimates as he looks for 18% growth in ad revs ex-FX in 4Q and 18% in 2020. Walmsley is slightly raising his price target because he “likes the qualitative story from here a lot” but is maintaining his Hold rating due to limited upside to his target price and a relatively expensive valuation relative to growth versus other Internet peers. The company also continues to face pressure from regulators, as Congress and other bodies are weighing how to handle privacy concerns and “big tech.” Though Twitter is not a main target (compared to internet giants Facebook and Google), the company would still be caught in the crossfire should regulation be put into effect.
All in all, while Twitter’s stock is trading around its 52-week high, Wall Street isn’t completely sold on it. TipRanks analysis of 21 analysts shows a consensus Hold rating, with four analysts recommending Buy, 15 suggesting Hold and four advising Sell. The average 12-month price target on the stock is $41.34, representing just a slight increase from current levels. (See TWTR’s price targets and analyst ratings on TipRanks)