Twitter Inc (NYSE:TWTR) has been upgraded to a Hold rating from a Sell by Cantor Fitzgerald analysts Youssef Squali, Naved Khan and Kip Paulson in a report released on April 10, 2014. Many factors are responsible for the upgrade, including a positive first quarter so far, expected launch of many new ad formats to boost monetization, and also a “pullback” on valuation, which makes analysts “less negative.”
Analysts also note the big lock-up expiration in May “and a full valuation keep us from getting more constructive.”
Rich valuation, impressive revenue growth
Presently, Twitter Inc (NYSE:TWTR) trades at 19.8 times the EV/Revenue and 126.8 times EV/EBITDA on the 2014 estimates from the Cantor Fitzgerald. Based on the 2015 estimates, the micro blogging site trades at 10 times and 51 times the multiple. According to analysts, the valuation is rich, but is lower from the 30x and 200x witnessed, in December and early January.
Apart from the valuation, the 100% annual revenue growth makes Twitter “an ideal play on continued secular growth in mobile and social ad spending, particularly as high-value brand ad dollars transition to the Internet.”
Twitter faring better than rivals
For February, Twitter Inc (NYSE:TWTR) performed better than rivals, in terms of unique user growth in the U.S., witnessing a 23.9% year over year growth to 68.8 million. Total time spent on the platform also increased by 30% year over year to 8.9 billion minutes. However, on a per user basis, the time spent increased 30% year over year to 129.9 minutes compared to 31.4% for Facebook Inc (NASDAQ:FB).
For the first quarter, analysts expect revenue to increase by 115.5% year over year to $246.4 million compared to the consensus estimate of $241.3 million. EBITDA is expected to rise by 190.4% year over year to $34.1 million compared to the consensus estimate of $19.6 million.
Twitter Inc (NYSE:TWTR) is taking a page from Facebook's playbook with mobile app install ads, which have garnered good response from the game developers and e-commerce companies. Twitter witnessed robust monetization growth in the fourth quarter, with ad revenue/1,000 timeline views rising by 75.3% year over year. Analysts believe that expanding ad formats further could boost the monetization by attracting a new set of advertisers.