Analysts at BMO Capital are initiating coverage of Twitter Inc (NYSE:TWTR) with a Market Perform rating and $55 price target. After the recent run in the shares, analysts are relegated to the sidelines despite having a positive view of Twitter Inc (NYSE:TWTR)’s differentiated opportunity around Social TV advertising. Valuation at these levels requires a close eye on user growth and Twitter Inc (NYSE:TWTR) has unique opportunities (like its real-time and transparent nature’s appeal to younger audiences) and challenges (a more chaotic nature that can drive some users away).

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Twitter shares

Analysts would look to get more positive on a pullback in the shares, or incremental news on advancing the Social TV advertising opportunity or accelerated spending owing to new product launches like Tailored Audiences or upgrades to the Twitter Ads API that improve targeting capabilities and drive new demand. Analysts expect Twitter Inc (NYSE:TWTR)’s role in the real-time bidding ecosystem to be more similar to that of Google Inc (NASDAQ:GOOG) (recently acquired MoPub serves third-party publishers like DoubleClick) than of Facebook Inc (NASDAQ:FB), where FBX is a private exchange.

The long-term target adjusted-EBITDA margin range of 35-40% is achievable in analysts’ opinion, but will require considerably more leverage off of research & development and sales & marketing expenses; vital to the expansion of margins will be revenue growth driven through Twitter Inc (NYSE:TWTR)’s self-serve advertising tools rather than the more expensive direct sales force.

Forecasts & Valuation

BMO’s $55 target is underpinned by comparable revenue and EBITDA valuation analysis based on 2015 estimates, as well as their DCF model. Analysts’ target implies that Twitter Inc (NYSE:TWTR) shares trade at 20x gross revenue, which is well above the 5x average of online advertising companies and deserved, in analysts’ opinion, owing to faster revenue growth, a mobile-first heritage and a unique relationship with TV content and ads.

Analysts rate Twitter Inc (NYSE:TWTR) as Market Perform with a price target of $55.