Top analysts are putting Tesla Inc (NASDAQ:TSLA) and Twitter Inc (NYSE:TWTR) on the stand, spotlighting challenges in valuation for Tesla and the heat of competition chasing close at Twitter’s heels. While Barclays may recognize auto data leadership potential for Tesla and Baird spotlights real potential for a comeback from Twitter, both keep wary eyes, waiting until these two giants prove reason to step towards a more positive perspective. Until then, let’s take a closer look:
Tesla’s Biggest Problem: Valuation
Barclays analyst Brian Johnson may not be optimistic on Tesla, but he certainly recognizes Elon Musk’s brainchild is a prime example of unrealized potential. In fact, Johnson acknowledges the electric car giant as a true “leader in big auto data,” and primarily sees the stock from a selling stance in light of its overly valued shares.
As such, the analyst reiterates an Underweight rating on shares of TSLA with a $165 price target, which represents a just under 47% downside from where the stock is currently trading.
Johnson contends, “During development and testing of the vehicle, data can be harvested and analyzed to identify fixed needed in the care–which can then be delivered through OTA (over the air) if it’s a software-related issue, or if it’s hardware related fixed in subsequent vehicle builds or at service centers. Indeed, one of Tesla’s technological and marketing advantages is not only its ability to do frequent OTA updates, but to have an eager early adopter customer base that for the Model 3 is likely to tolerate acting as on-road test vehicles to identity manufacturing defects that will likely require service center interventions.”
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, three-star analyst Brian Johnson is ranked #1,559 out of 4,571 analysts. Johnson has a 55% success rate and realizes 2.8% in his annual returns. However, when recommending TSLA, Johnson loses 26.1% in average profits on the stock.
TipRanks analytics show TSLA as a Hold. Out of 17 analysts polled by TipRanks in the last 3 months, 5 are bullish on Tesla stock, 6 remain sidelined, and 6 are bearish on the stock. With a loss potential of 11%, the stock’s consensus target price stands at $274.55.
Twitter Remains a Waiting Game
Twitter delivered an earnings beat yesterday for the first quarter of the year, with both revenues as well as EBITDA meaningfully ahead of “modest” consensus expectations. Top analyst Colin Sebastian at Baird attributes this strength to better execution, which to him is clear considering recent surges in user engagement as well as expense restraints set in place.
As the social media giant confronts swirling short-term price struggles and rising competition, the analyst reiterates a Neutral rating on TWTR with a price target of $17, which represents a 7% increase from where the shares last closed.
For the first quarter, Twitter posted $548 million in revenue, which though marks a close to 8% decline year-over-year still tops low consensus targets calling for $517.3 million. Additionally, Twitter’s quarterly revenue hit the high range of implied revenue guidance of $428 to $558 million. Advertising revenues likewise dipped year-over-year to the tune of 11% down to $474 million, but still hit ahead of consensus of $442.7 million. Domestic revenue fell 13% year-over-year, but total ad engagements rose 139% year-over-year. CPE (pricing) hit a 63% downward turn year-over-year which the analyst attributes to a persistent “mix-shift” heading in the direction of video content coupled with accelerating video view rates.
Meanwhile, non-GAAP EBITDA reached $170 million, which the analyst points out indicates a 31% margin “still above record Q4 levels of 30%” as well as significantly over consensus of $97.9 million. EBITDA also outperformed Twitter’s own outlook set for $75 to $95 million, which Sebastian believes comes on back of revenue upside coupled with the impact of company restructuring endeavors to lower costs. Accordingly, non-GAAP EPS of $0.11 also outclassed consensus of $0.02.
For the second quarter, the Twitter team is calling for $95 to $115 million in adjusted EBITDA, which indicates a 21% to 21.5% margin for GAAP revenue and implied revenue of $442 million to $548 million, underwhelming consensus EBITDA expectations of $141.2 million and revenue of $555 million.
“Guidance appears prudently conservative following the disappointing 2016,” notes the analyst, explaining he anticipates these challenges to lessen by the back half of the year, as “[…] we note that the wide guidance range reflects somewhat cloudy near-term pricing and competitive scenarios.”
Moreover, “While Twitter may continue to face challenges demonstrating meaningful ROI to advertisers in the face of competition from FB/GOOG/SNAP, we believe recent product innovations including live video could lead to a faster turnaround in 2H-17. Although we see less downside risk from current levels, we await tangible signs of sustained improvement before turning more constructive,” continues Sebastian.
Ultimately it comes down to prioritizing video, the analyst concludes, elaborating, “Management also highlighted the success to date of live video partnerships, with 800+ hours of live programming in Q1 driving a 30% Q/Q increase in unique viewers to 45M. We anticipate the company will continue to emphasize its video products as a catalyst for increased user engagement and higher levels of advertiser spending moving forward.”
Colin Sebastian has a very good TipRanks score with a 77% success rate and a high ranking of #19 out of 4,571 analysts. Sebastian yields 20.7% in his yearly returns. When recommending TWTR, Sebastian earns 0.0% in average profits on the stock.
TipRanks analytics indicate TWTR as a Hold. Based on 31 analysts polled by TipRanks in the last 3 months, 4 rate a Buy on Twitter stock, 16 maintain a Hold, while 11 issue a Sell. The 12-month average price target stands at $15.22, marking a nearly 4% downside from where the stock is currently trading.