Twitter stock got killed last week after the company’s earnings results were accidentally released early and they disappointed Wall Street. Analysts from multiple firms slashed their price targets for the micro-blogging platform after that report, but Stifel actually upgraded the company’s stock.
Twitter stock goes to Hold
In a report dated May 3, analysts Scott Devitt, John Egbert and Alex Chavdaroff said they have upgraded Twitter from Sell with a $36 per share price target to Hold with no price target. Despite their upgrade, they still think the stock will see pressure in the long term after the “potential near-term narratives” come to an end.
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The reason for their view is because the company’s revenue has slowed by about 44 percentage points over the last three quarters, which they say isn’t good for Twitter’s current multiple. They did name three main reasons for their rating upgrade though.
Will Google buy Twitter?
Recently there have been rumors that Google is interested in buying Twitter. This is a refresh of rumors we’ve heard before. The Stifel team states that they don’t have any knowledge about possible merger and acquisition talks, but they think Google could have interest in the micro-blogging platform “at some price.” They don’t think that price would be a premium to Twitter’s current valuation, however.
They point out that the company is struggling, so Google tossed it a lifeline in the recently announced partnership. They think Google, which has been “historically smart” in buying assets, probably wouldn’t help stabilize Twitter, which would potentially raise its valuation, if it was trying to buy it.
However, they note that Wall Street apparently wants to believe the rumor, and they don’t think it’s worth fighting the rumor.
Changes coming at Twitter
Another rumor that’s been persistent on Wall Street is that Twitter is preparing to change some of its management, which results in a premium to the company’s share price. The Stifel Team thinks that if there is any change in management, Twitter shares could increase because “new management would get an extended leash to prove itself before the reality of the business set [sic] in again.”
Twitter has also been making numbers changes to its platform, although it has left its core platform “relatively unchanged.” The Stifel team thinks that because of how much attention Twitter gets in the market and on TV, every minor change is seen as a big turning point for the company’s products. However, they don’t think much has changed yet and would be surprised if anything major does change. At the current low levels though, they don’t want to wait things out
Twitter in the long term
The analysts also pointed out three big long-term issues for Twitter. Of course there is the problem of slowing user and usage growth, which Wall Street has been worried about since the company went public. (All graphs in this report are courtesy Stifel.)
They also believe Twitter may be over-monetized in some developed markets even though management has stated that the platform is under-monetized.
Third, Twitter continues to be subjected to negative comparisons to other social networks, especially Twitter.
In addition to those two negative comparisons, the Stifel team also included one positive one, as they state that when adjusting for time spent, Twitter is actually monetized much more than Facebook.
As of this writing, shares of Twitter were down 0.5% at $37.65 per share.