Twitter (TWTR) Stock Struggles to Fly, Evercore ISI Weighs In

Following strong quarterly performances by fellow social networks Facebook and Snap, investors had hefty expectations for Twitter’s (TWTR) Thursday morning fourth-quarter results. Unfortunately, the company wasn’t able to live up to the hype. Despite strong revenue growth of 24% and EPS growth of 63%, bearish investors drove the stock down as much as 11% during Thursday trading; weak guidance and concerns over company transparency (Twitter announced it would stop reporting monthly active user numbers) are the primary contributing factors to the pullback.

Twitter’s earnings haven’t changed Evercore ISI analyst Anthony DiClemente’s point of view on the company, as he maintains his In Line (i.e Hold) rating and price target of $32, which implies nearly 5% upside from current levels. (To watch DiClemente’s track record, click here)

DiClemente is actually extremely happy about Twitter’s 4Q revenue results, saying they were “objectively excellent,” but noting, “the stock “trading down relates to FY19 cost growth guidance of +20% YoY, which is above prior expectations for expense, and may indicate that similar to Facebook, Twitter will need to spend to address platform health and safety at the expense of near-term margins.” Essentially, he is saying that expenses seem to be rising faster than most thought they would.

DiClemente is most concerned about Twitter’s short-term future. He says, “1Q GAAP OI guidance calls for a material margin stepdown toward the mid-single digits, well-below current Street models. Further, FY19 guidance calls for 20% operating expense growth, which will challenge the bull case that margins would be stable to slightly positive this year. As it relates to capex FY19 guidance suggests YoY growth in the range of 16- 27%. As such, both OI and FCF are likely to decline in 2019.” While revenue is expected to continue rising, the bottom-line is that the analyst expects Twitter to see decreasing profitability in the coming year.

Twitter seems to need to move in the same direction as Facebook in terms of platform health. The analyst says that while he had hoped “Twitter could avoid the type of ramp in spend that we’ve seen Facebook undertake…Guidance suggests that TWTR will need to make more modest, but still material, incremental investment to address the health of the Twitter experience,” which includes taking down bot accounts. Under GDRP and increased US Congressional scrutiny, social networks, including Twitter, are doing more to police their platforms or else face the possibility of significant regulation.

Similar to DiClemente, Wall Street isn’t completely sold on Twitter. TipRanks analysis of 14 analysts shows a consensus Moderate Buy rating, with 6 analysts recommending Buy, 6 recommending Hold and 2 recommending Sell. The average 12-month price target on the stock is $34.31, representing an 11% increase from its current price. (See TWTR’s price targets and analyst ratings on TipRanks)


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