Twitter Inc (NYSE:TWTR) stock surged by more than 10% in intraday trading on Monday, climbing to its highest level in more than a year at $24.57. The social media firm has JPMorgan analysts to thank for that sudden surge in the Twitter stock price, as they named it one of their top smid-cap ideas for 2018.
Twitter stock upgraded to Overweight
Analyst Doug Anmuth upgraded Twitter stock from Neutral to Overweight and boosted his price target from $20 to $27 per share. He expects the company’s results and even its story to become stronger over the next year, building on the “differentiated value proposition” it offers to users as it returns to revenue growth.
He cited four main reasons for his upgrade. First, he feels that the company’s products are improving on the back of video and live-streamed content, timeline changes, notifications, the Explore tab, and improvements to the user interface. He expects all of these changes to drive continuing double-digit growth in daily active users next year. He has also been watching Bloomberg’s TicToc, a global news network made specifically for Twitter and launching today with seven sponsors.
Anmuth believes that video and live-streamed content are the most important parts of Twitter’s new platform, and he sees it as differentiated because it’s focused more on real-time news and discussions. The micro-blogging platform streamed 830 live events during the third quarter, and 74% of them reached a global audience.
Return to growth next year
The JPMorgan analyst looks for Twitter to return to revenue growth next year as he looks for a 10.7% increase, including an 8.6% increase in ad revenue and 23% growth in data licensing. He pointed out that the micro-blogging platform’s daily user base has grown consistently in the double digits over the last year, and he feels that the platform’s content is improving as well. As a result, he also believes that advertisers are getting back into using Twitter, citing “more upfront deals” and his discussions with others in the industry.
Anmuth also expects Twitter to be profitable on a GAAP basis as its margins expand, driven by revenues rather than cost-cutting measures. He expects the company to invest “selectively” from here on out. Even with a 5% increase in non-GAAP expenses next year, he still expects 2018 to be the first year the company posts a GAAP profit, resulting in more than 20% growth in EBITDA and an EBITDA margin of 37%.
Twitter stock still on the rise
He also noted that Twitter stock isn’t cheap right now as it has gained 30% since the company’s third-quarter earnings release in October. Based on his revised numbers, Twitter stock was trading at 11.8 times his 2019 EBITDA estimate before today’s rally. However, he also expects the platform’s improving traction among marketers and users to drive upside to consensus estimates for 2018.
Today’s gains in Twitter stock add to last week’s gains, which some said were brought about by fresh speculations that the company could be bought out, possibly by Twenty-First Century Fox, which is planning on shedding its movie and TV studios and its other major entertainment-related assets to focus more on news and sports.
