Top Analyst Expects Twitter (TWTR) to Serve 1Q18 Earnings Beat, But Shares Are Fairly Valued

SunTrust's Youssef Squali sees an full-valued stock in TWTR, but anticipates "incremental improvements" out of the company's first quarter print.


Top analyst Youssef Squali at SunTrust is setting encouraged expectations on Twitter Inc (NYSE:TWTR) ahead of next Wednesday’s first quarter print of 2018, angling for some upside ahead.

For the first quarter, Squali is more confident than the Street, calling for a 13% year-over-year jump to $620 million in total revenue and $215 million in adjusted EBITDA. In comparison, consensus expectations stand at $603 million in total revenue and $205 million in adjusted EBITDA. The TWTR team itself is looking for $185 to $205 million in adjusted EBITDA along with an implied revenue range between $544 to $621 million, and Squali takes this in stride as “improving fundamentals.” The analyst additionally looks for a 13.5% year-over-year lift in ad sales to $538 million and a 10.2% year-over-jear climb in data licensing to $82.1 million. Moreover, Squali anticipates monthly active user (MAU) growth to circle 2% year-over-year to 332 million, marking 2 million sequential net adds- a sore point that shines light on the waning exhibited in the past 4 quarters. However, the analyst keeps his eyes peeled to sustained gains in user engagement based on TWTR management commentary.

Notably though, estimates currently soar closer to the tail-end of the guide. The analyst adds, “Unlike in prior quarters, Street estimates have been relatively unchanged throughout 1Q18, which we think is an indication of the growing stabilization of the platform.” Though Squali approaches TWTR from a neutral perspective, he is reassured to see “near-term stabilization achieved” and looks for a “pick up in growth” from the company. Tailwinds await, including thanks to the company’s video ad chart that yielded direct response (DR) advertisers to return to the company’s platform last year, a positive Squali anticipates continuing through this year.

Net net, the analyst reiterates a Hold rating on TWTR stock with a $29 price target, which implies a just under 11% downside from current levels. Squali’s neutral stance is based on:

  1. Modest MAU growth (flat sequentially in 4Q17).
  2. Growing competition for time spent on mobile.
  3. Additional scrutiny over data practices in a post FB/CA world and GDPR.
  4. Intense competition for live video rights/original content, a key strategic imperative for management.
  5. Fair valuation.

Youssef Squali has a very good TipRanks score with a 70% success rate and a high ranking of #58 out of 4,788 analysts. Squali gains 20.2% in his yearly returns. However, when recommending TWTR, Squali gains forfeits 25.4% in average profits on the stock.

TipRanks indicates apprehension rules the Street on this rebounding social media titan. Out of 26 analysts polled in the last 3 months, Wall Street is split between the bulls, the bears, and the sidelined: 5 rate a Buy on TWTR stock, 16 maintain a Hold, while 5 issue a Sell on the stock. It is clear the bears win out when it comes to expectations, with the 12-month average price target of $28.96 reflecting 12% in loss potential for the stock.

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