Twitter has had a rough start to 2015, and things appeared to be much of the same in its second quarter earnings report last night.
Yes, sales and revenue topped analysts’ projections, causing an initial spike in shares after hours. But there was one glaring disappointment: monthly active users. Users of the main application rose by just 2 million from the prior quarter, a gain of less than 1 percent. Chief Financial Officer Anthony Noto said that while the social media firm is adding marketing clients, it doesn’t expect to see “sustained, meaningful” growth in monthly users for a considerable period. That doesn't seem to be what analysts were hoping or expecting to hear, as shares plunged in after-hours trading.
With a lot of questions surrounding the firm, such as who will be the next CEO and possible acquirers, here is a look at what analysts are saying about the earnings release and the conference call that followed. As you can see, there are a lot of lowered price targets.
Cowen and Company's John Blackledge (Lowered price target to $30 from $34.)
2Q15 Results: Good Financial Results, User Issues Concerning. TWTR reported good 2Q15 financial results, but user issues persist. Mgmt. noted limited user growth could persist for an extended period of time given mass adoption issues, potentially impacting forward revenue growth as it could limit ad inventory growth. We lowered long-term estimates, which were ~10% below street pre-print.
Bank of America Merrill Lynch's Justin Post (Lowered price target to $40)
In the near term, we expect concerns on users/usage to weigh on stock as street takes a wait and see approach to the Project Lightening (curated feeds and news) launch in the fall. In the long-term, Twitter needs to become a mass market platform and we are not convinced added marketing will put the platform over the hump (it is a product problem, in our view). Given slowing user and rev. growth, we expect a smaller multiple gap to Facebook, and we are lowering our price objective to $40 based on 30x 2016 EBITDA (vs. Facebook trading at18x). We think Twitter could continue to see some valuation support on acquisition news.
Goldman Sachs' Heath Terry (Lowered price target to $49 from $56)
Management expects similar growth in MAUs until Twitter can reach the mass market, something contingent on improving the user experience and marketing the value proposition of being an engaged Twitter user. While this carries a high degree of difficulty we do believe the company can accomplish those goals and with TWTR trading at a 1.5X the median sector multiple despite more than 2X sector EBITDA growth, we see the risk/reward as favorable.
Macquarie's Ben Schachter (Lowered price target to $34, from $40)
The bottom line for TWTR is that after nine years of its existence, my mother still doesn’t understand what it means to “hashtag” something, but she does understand what it means to “like” something. That is to say that Twitter is still too difficult to use and inaccessible to too many. It still isn’t a mass market product and it is unclear if it ever will be. User growth is the key issue. Monetization isn’t the problem. The roadmap for monetization has already been shown by Facebook; TWTR can just follow it (and, in fact, is). However, if it can’t improve the product and make it more interesting and accessible to more users, the stock simply will not work.
Morgan Stanley's Brian Nowak (Lowered price target to $36 from $39)
While user growth expectations were already lowered going into Q2, commentary around the inability to break into “mass market” bring into question the addressable market. TWTR ultimately needs to drive ad load and pricing higher to work, and at current levels stock remains expensive in our view.
Pacific Crest's Evan Wilson (Price target unchanged at $52)
Sticking with TWTR until new CEO is announced. Our estimates are largely unchanged...TWTR trades at a multiple (just over 20x 2016 EV/EBITDA) similar to other Internet names (LNKD, YELP, Z) and is cheaper relative to its growth rate, is growing revenue faster and has similar user growth struggles, which provides valuation support. We see a new CEO as a glimmer of hope that could cause it to outperform through the end of the year.