Twitter Inc (NYSE: TWTR) stock continued to fall, dropping 5.7 percent on Monday on the heels of a huge 20.5 percent loss on Friday. But some Wall Street analysts are taking a more bullish view of TWTR stock and say Twitter’s long-term business is perfectly fine.
While Twitter reported it lost 1 million active users in the second quarter, Baird analyst Colin Sebastian says Twitter’s second-quarter numbers were pretty decent. Earnings were mostly in line with expectations, and revenue growth was well above Wall Street estimates.
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Sebastian says the drop in monthly active users and disappointing margin and growth guidance justifiably spooked the market.
“Twitter’s pace of execution on key growth initiatives (streaming partnerships, new ad formats, user engagement) is encouraging, but we think shares are likely to remain under some pressure until visibility improves for user growth and spending trends,” Sebastian says.
Twitter guided for incremental earnings before interest, taxes, depreciation and amortization margins to decline from 64 percent in the second quarter to just 23 percent in the third quarter.
“While we believe that investments in ‘platform health and safety’ are warranted and should improve engagement, Q3 guidance reflects a downtick in MAUs even as operating expenses continue to ramp,” Sebastian says.
While Wall Street waits for more clarity from Twitter, Barclays analyst Ross Sandler says investors should reconsider Twitter’s current valuation. Sandler says second-quarter numbers and third-quarter guidance don’t necessarily kill the long-term bull thesis.
“While the print may have disappointed the uber-bull camp, we actually see it as stable and think TWTR’s steps toward improving the health of the platform should help in the long run,” Sandler says.
Still, Sandler says Twitter’s stock looks overpriced compared to peers such as Alpahabet ( GOOG, GOOGL) and Facebook ( FB).
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After at least two days of heavy selling, the big question for Twitter investors is how much lower the stock can go before it finds some buying support. Even after a 24.8 percent two-day decline, TWTR stock is still up 92.9 percent overall in the past year.
Baird has a “neutral” rating and $33 price target for Twitter. Barclays has an “underweight” rating and $24 target for TWTR stock.
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The Twitter Inc (TWTR) Stock Sell-Off May Be a Big Mistake originally appeared on usnews.com
