Twitter (TWTR) Stock Has Fallen Too Far, Says Oppenheimer


After an impressive breakout earlier this month, a post-Fed beating took Twitter (TWTR) shares as much as 13% down today. However, Oppenheimer analyst Jason Helfstein believes today’s decline is overdone, and creates an attractive entry point for patient investors looking to buy on the dip.

The reputation of Twitter, as well as Twitter stock itself, has been on the rise in recent months. As its much larger rival Facebook remains mired in political controversy, the tweeting machine continues to attract engagement, and by extension, revenue.

Indeed, Helfstein believes Twitter stock will enter 2019 with the best momentum in digital adverting thanks to DAU growth, higher rev/DAU and expenses growing slower than revenue.

To ease some investors’ concerns Helfstein noted:

  1. We do not see any increased risk of regulatory scrutiny around privacy as Twitter is a public platform, whereas FB is semi-private. Ahead of 3Q:18 results, investors were worried that TWTR would have to increase expenses for platform safety in 2019, and mgmt dismissed this concern.
  2. For a long period of time, TWTR has been dealing with the negative impact of trolling or harassment. While most of the changes happen in the tech stack and are not visible to users, engagement is improving as reflected in DAU/ MAU.
  3. Though co-founder and director Evan Williams’ sales are bearish, past sales have not been a good predictor of the stock (he was selling at $24 in December 2017, ahead of the stock reaching $47).
  4. We believe Street estimates are too low, with Opco 8% and 17% above consensus for 2019E revenue and EBITDA, respectively. At 13.2x 2019E EBITDA, growing ’17-’19E EBITDA at 29%, we find the stock highly compelling.

All in all, Helfstein reiterates an Outperform rating on Twitter shares with a price target of $37, which represents a potential upside of 26% from today’s closing price. (To watch Helfstein’s track record, click here)

However, the Street does not share this optimism. Right now, Twitter stock has a Hold analyst consensus rating, which breaks down into 5 recent Buy ratings, 11 Hold and 3 Sell ratings. Meanwhile, the $34.26 price target suggests a potential upside of 17% from current levels.

 

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