Twitter Inc (NYSE:TWTR) has been upgraded to Buy from Neutral by analysts at UBS. They also bumped up their price target for the micro-blogging company from $50 to $65 per share. The team thinks positive sentiment on Twitter’s sales growth will essentially replace current investor worries about monthly active user growth.
Twitter sees positive momentum
In their report dated Sept. 10, 2014, analyst Eric Sheridan and associates Vishal Patel and Timothy Chiodo said they have increased their revenue estimates for the company through 2018. Their checks suggest that Twitter Inc (NYSE:TWTR) is having positive momentum from its some ov its objective-based campaigns, lke the pay-for-performance campaign.
They believe that launching Promoted Video ads, introducing the “Buy Now” button and rolling out self-serve ads internationally place Twitter in a strong position in the top areas of secular growth within the digital advertising industry. They also say that adding TapCommerce to the company’s ad tech stock brings more demand to its MoPub exchange, further improving its positioning.
As a result, they think Twitter Inc (NYSE:TWTR) could see upside with very little increases in operating expenditures compared to their previous estimates.
Twitter’s growth rate seems impressive
The UBS team notes that Twitter Inc (NYSE:TWTR)’s second quarter results weren’t as disruptive as competitor Facebook Inc (NASDAQ:FB)’s second quarter 2013 results. Nonetheless, they looked to the second quarter and recent ad checks from the current quarter and saw continued growth in revenue in the near term.
They say is the growth rate is higher than 100% as Twitter advertisers see rising return on investments and effectiveness of ad units on Twitter. In addition, they say advertisers are starting to understand better how to leverage Twitter’s real-time nature.
The analysts further note that investors remain concerned about decelerating monthly active user growth and absolute valuation. However, they increased their estimates because of the company’s “early positioning in terms of leverage.”
UBS raises estimates
They noted Twitter’s second quarter gross margin of 74%, compared to Facebook’s 84%. Also the company reported a 17% EBITDA margin, compared to Facebook’s 68%. They think Twitter’s sales growth will result into “significantly higher EBITDA” which will enable the company to grow into a multiple that is more in line with its peers.
Their third quarter revenue estimate rises from $357 million to $367 million, while their adjusted EBITDA estimate rises from $57 million to $58 million. They bumped up their earnings per share estimate to 1 cent from a loss of 1 cent per share.
For the full year, they’re now looking for $1.44 billion in revenue, an increase from their prior estimate of $1.35 billion. They increased their adjusted EBITDA estimate for the full year from $265 million to $282 million and their adjusted earnings per share estimate from 13 cents to 16 cents per share.
