For years, Twitter Inc (NYSE: TWTR) was the market laggard among social media and online advertising stocks, struggling to keep up with Facebook ( FB) and Alphabet ( GOOG, GOOGL). But even now that Twitter has reported two solid quarters in a row and Snap Inc (SNAP) has seemingly taken over as the most disappointing social media investment, analysts say it may still not be time to buy Twitter stock.
Despite beating market expectations for earnings, revenue and monthly users and reporting just its second profitable quarter in history, Twitter stock is mostly flat since its April 25 earnings report. Bank of America analyst Justin Post says just because Snap is getting the negative attention doesn’t make Twitter stock a value.
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Post says management commentary on potential revenue growth deceleration in the second half of 2018 along with a number of other troubling metrics suggest Twitter still has a long way to go to be on par with Google or Facebook. Post says Twitter has a higher user churn rate than peers, and its lackluster 2 percent monthly active user growth is well behind the growth rates of Snapchat, WhatsApp and even Facebook.
With the stock up 28 percent in 2018, Post says it now trades at a 2019 projected enterprise multiple of around 15. The average 2019 enterprise multiple of Twitter’s peers is 13, and Facebook’s is about 10. In terms of market cap per daily active user, Twitter’s users are valued at roughly $150 compared to just $110 for Snap, but Post says both Snap and Facebook generate much more user engagement time than Twitter.
“Twitter deserves credit for progress on product improvements, platform clean-up and for accelerating revenue growth,” Post says. “However, slower user and [average revenue per user] growth than peers suggests Twitter’s product strategies are not driving anticipated improvements.”
CFRA analyst Scott Kessler says Twitter has demonstrated notable fundamental improvement in its recent quarters, but the stock is fully valued at its current level.
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“We see revenue increases of 13 percent in 2018 and 10 percent in 2019,” Kessler says. “We expect the company to continue to invest in infrastructure, develop and refine new offerings, spend on content partnerships and pursue international expansion.”
Bank of America has an “underperform” rating and $27 price target for Twitter. CFRA has a “hold” rating and $29 target for TWTR stock.
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Twitter Inc (TWTR) Stock Is Better Than Snap, But Not By Much originally appeared on usnews.com
