RBC reiterate their Outperform rating and raised PT to $60 after positive advertiser survey results.
Key points on Twitter
RBC conducted a survey of advertising pro’s with Ad Age and the results indicated positively for Twitter Inc (NYSE:TWTR). Key Takeaways were: 1) Twitter Advertising platform is improving – A substantial 40% of Twitter advertisers reported improving ROI over the last 6 months and 40% have also increased their Twitter spend; 2) Twitter ad spend to increase – 59% of respondents plan to increase ad spend with Twitter over the next 12 months; while only 4% plan to decrease – an intrinsically positive skew; 3) Twitter Inc (NYSE:TWTR) compares favorably with Facebook/ Google – Twitter ranks third behind Facebook Inc (NASDAQ:FB) and Google Inc (NASDAQ:GOOG) in terms of ad effectiveness; and 4) Still room to grow – Twitter is behind Facebook Inc (NASDAQ:FB) in terms of advertiser adoption and spend. RBC interpret this as implying additional growth opportunities.
Significant room for improvement – Analysta at RBC believe that Twitter Inc (NYSE:TWTR) is still very early on in terms of engaging with its user base and with its advertisers. On the first, analysts believe that Twitter has only recently begun to focus on the user experience and overall engagement levels, which may help explain the MAU deceleration the company has seen. But recent efforts to simplify the onboarding process, to develop a “media forward” feel to the site (direct integration of photos and video), and to “amplify” content all carry the potential to “mainstream” the Twitter experience, which should boost growth. Likewise, efforts to expand advertiser offerings and to build out its ads salesforce in key markets also carry the potential to materially improve monetization.
RBC is increasing their estimates based on the positive results of analysts’ advertiser survey, their industry checks, and firm’s increased conviction in Twitter Inc (NYSE:TWTR)’s advertiser tools and user functionality improvement potential. RBC’s 2015 Revenue and EBITDA estimates increase by 22% and 23% respectively. Because of firm’s higher growth outlook, analysts also increasing their target valuation multiples. Analysts’ $60 PT is a result of 22x firm’s 2015 Revenue and 110x RBC’s 2015 EBITDA. These constitute the highest target multiples in analysts’ coverage space, but they view them as appropriate given firm’s outlook for a 3-year 64% Revenue CAGR and 123% EBITDA CAGR, the highest in their coverage space.
Twitter has displayed robust growth in key metrics
Analysts are positive on Twitter Inc (NYSE:TWTR)’s ability to become one of the Web’s leading utilities (alongside Google, Amazon, Facebook). Twitter has displayed very robust growth in key metrics and analysts have confidence that this momentum can continue as the company develops its advertising platform. What’s more, Twitter is one of the best plays off two of the biggest secular growth trends in the Internet Space: the rise of the Mobile Internet and the migration of TV ad budgets Online.