Twitter Inc (TWTR) Initiated With Neutral Rating: UBS

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Twitter Inc (NYSE:TWTR) has been on the stock market for a little over a week now. After ballooning up suddenly from its $26 a share initial public offering price into the $45 a share opening price, analysts are starting to think the company will stay right around that same price for the time being.

UBS initiates with $45 price target

UBS analysts Eric J. Sheridan, Vishal J. Patel and Timothy E. Chiodo initiated coverage of Twitter Inc (NYSE:TWTR) this week with a $45 per share price target and a Neutral rating. They think the social media company is well-positioned, but they believe there are some barriers to growth which currently exist.

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One of the biggest problems is getting new users. The analysts say many new users have struggled with figuring out how to use Twitter. They say the company’s “unstructured, rapid evolution” has created a headwind for new user growth because those who are new to the platform aren’t entirely sure how to use it in the beginning.

Twitter looks good in the long term

The analysts do like Twitter Inc (NYSE:TWTR) in the long term, however. They say management will have to take the social media platform “mainstream” by identifying “a set of core product use cases.” Like others have noted, some possible routes Twitter could follow include news and content distribution, communications and / or a sort of social television platform, which involves Twitter being a second screen for viewers to interact with other viewers while they watch a popular television show.

They note that the company has three important secular strengths in mobile, social and personalization. As a result, they see the potential for Twitter to innovate and disrupt the industry over the long term.

What Twitter’s future may look like

The analysts said their base case makes the assumption that Twitter Inc (NYSE:TWTR) can scale its revenues “well above industry rates” by continuing to grow the number of users and also engagement with the platform. They also expect to see a number of improvements in advertising products and international monetization. They note that upside is possible if the company initiates other growth plans in the future, like social television, big data, Vine or something else.

They said in order to become more constructive on Twitter Inc (NYSE:TWTR) shares, they would need to see a lower share price with a better risk / reward or greater potential to grow revenue or margins more quickly than they expect.