Twitter Inc (NYSE:TWTR) stock, post-IPO, is expected to surpass the Pivotal research group analyst’s price target “quite rapidly,” but the level of advancement will be influenced by the market scenario and demand along with positive operating momentum in the near term according to Pivotal analyst Brian Wieser.
Twitter right price is around $29
Though Twitter is expected to race past the price target, based on the present information available, analysts believe that for Twitter, the right price range is around $29, and if Twitter Inc (NYSE:TWTR) goes beyond the price target then Facebook Inc (NASDAQ:FB) will be the preferred stock in the sector, which has a Buy rating and a price target of $57. Analysts are positive towards Twitter, but note that the upside will primarily depend upon the growth of its business beyond “our expectations for more than $4bn in revenue by our model’s terminal year of 2018.”
Twitter Inc (NYSE:TWTR), according to the report, is a “niche medium” and the business is capable enough of maintaining its niche category. Also, Wieser notes that in most geographies, it is challenging to find an alternative of Twitter, which will safeguard it from being commoditized, but indirect competition will dominate. Twitter’s nature of ad buying is focused on “least bad” alternatives.
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Ad load must be managed carefully
Analysts feel that if the consumer spending declines then the media owners can resort to the increasing number of ads on their sites. However, there is a limit to such growth, but from the experience of cable networks one can gather that whether or not the number of ads increase, they do not affect the course of advertising budgets or growth in consumption of the medium. Contrary to this, in areas where consumers can easily switch to another medium such as digital media, too much ad load can cause user erosion. Thus, it will be advisable for Twitter to contain ad load at some point of time.
The Pivotal analyst has a Buy rating on Twitter Inc (NYSE:TWTR) with a price target of $29. Key risks that can affect the valuation are a greater number of acquisitions to remain competitive, comparatively unproven advertiser proposition and challenges in scaling business profitability. Wieser also notes that the stock can go through some downward pressure either due to sales backed by lock up expirations, some wrong policies and actions of the company, challenges from the competitors or because user trends fail to meet investors’ expectations.