Twitter shares slumped today after actor Alec Baldwin announced that he’s leaving the platform because he feels censorship has become a big problem there. He’s also calling for CEO Jack Dorsey to be fired. It’s not much of a stretch to believe that Baldwin’s leaving the platform could convince millions of others to do the same, and Twitter has already been struggling to add and now even retain users, as demonstrated by its last earnings report.
The company’s stock fell by as much as 4.81% to $17.41 per share in early trading today.
Raymond James upgrades Twitter
Despite all the problems though Raymond James analysts Aaron Kessler and Justin Patterson upgraded the micro-blogging company’s stock from Market Perform to Outperform on Tuesday. They also said a $25 per share price target, saying that they see the risk/ reward profile as being attractive now with the potential for 40% upside in their base case and 80% upside in their bull case, compared to a 20% potential downside in their bear case.
Additionally, they expect Twitter to keep improving its user interface this year and continue to gain in monetization, such as through integration of DoubleClick, new ad formats and monetization of logged-out users. They also predict that the company’s earnings quality will improve as stock-based compensation has flattened out on an absolute basis and fallen as a percent of revenues, they noted.
They expect it to make up about 24% of this year’s net revenues and 21% of next year’s revenues, compared to last year’s 33%. In the long term, they expect this metric to fall toward 10% of net revenues.
Improvements expected at Twitter
The recent share purchases by insiders are also a huge positive. Executive Chairman Omid Kordestani picked up 122,250 more Twitter shares at an average price of $16.34 each or about $2 million, and Chief Financial Officer Anthony Noto bought 15,500 shares for an average price of $16.07 each or about $250,000.
The Raymond James team sees potential catalysts as improving the platform and monetization when weighed against the extremely negative sentiment. They note that Twitter management aims to fix “the broken and confusing parts,” which they believe will drive user engagement and growth. However, they don’t expect any major improvements until at least the second half of this year.
