24/7 Wall St. has included all the analyst calls we could find following Twitter’s earnings snafu, as well as the information from the company’s earnings.
The case was that Twitter didn’t report its first-quarter earnings on Tuesday after the markets closed, its earnings were leaked before the closing bell, with catastrophic results. The social media giant had $0.07 in earnings per share (EPS) on $436.0 million in revenue, versus Thomson Reuters consensus estimates of $0.04 in EPS on $456.82 million in revenue.
Twitter said that its first-quarter revenues were affected by a lower-than-expected contribution from its newer direct response products. Twitter expects this revenue impact to continue for the remainder of the fiscal year. Unfortunately for Twitter, that is not what investors were hoping to hear.
Revenue guidance for the second quarter of 2015 is expected to be in the range of $470 million to $485 million, while adjusted EBITDA is expected to be in the range of $97 million to $102 million. There are consensus estimates for $0.07 in EPS on $538.16 million in revenue.
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Average monthly active users (MAUs) were 302 million for the first quarter, up 18% year-over-year and compared to 288 million in the previous quarter. Average mobile MAUs represented approximately 80% of total MAUs.
During this quarter, Twitter announced a definitive agreement to acquire TellApart, which is a leading marketing technology company that provides retailers and e-commerce advertisers with unique cross-device retargeting capabilities through dynamic product ads and email marketing.
Back to the analyst calls: The social media giant was downgraded to Neutral from Buy with a $44 price target (from a $53 prior target) at Janney Capital Markets. This was one of many analyst calls that were not as positive on Twitter. The firm said
Weakness was attributed to the direct response ad product but dovetailed with a broader decline in ad engagement, which is concerning given they center around ad buyer demand and user receptiveness to ads. Twitter will likely lose the benefit of the doubt with investors.
Canaccord Genuity’s analyst, Michael Graham, lowered Twitter’s price target to $52.00 from $56.00 and said:
Twitter reported mixed results, with revenue missing the midpoint of guidance and the full outlook being lowered slightly. While there were a few disappointments, we are encouraged by 74% revenue growth, driven by both users and monetization. While we think most of the advertiser-related issues are temporary, the most negative aspect of the quarter in our view was the “low visibility” regarding Q2 (& beyond?) MAU growth.
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Wells Fargo has a Market Perform rating for Twitter with a valuation range of $42.00 to $44.00, which was lowered from $48.00 to $50.00. The valuation range reflects a 32.6-times EV-to-EBITDA multiple on the firm’s 2016 EBITDA estimate of $864 million. Wells Fargo believes that Twitter’s rapid growth, margin expansion opportunity and differentiated competitive position as a real-time communications platform will continue to merit a premium multiple. Wells Fargo describes its investment thesis as:
We view Twitter as a transformative social platform with opportunity to expand its audience scale, consumer value proposition and advertising utility. Our view is tempered by what we believe to be a rich valuation, complexity of the Twitter platform and potential challenges to meeting high investor expectations.
Other analyst calls on Twitter were as follows:
- Barclays downgraded it to Equal Weight from Overweight, and the price target was slashed to $44 from $60.
- Merrill Lynch maintained its Neutral rating but lowered the price objective to $44 from $52.
- RBC Capital Markets maintained a Sector Perform rating but cut the price target to $47 from $54.
- Jefferies had a Buy rating but lowered its price target to $60 from $65.
- Rosenblatt Securities downgraded Twitter to a Neutral rating from Buy and lowered its price target to $42 from $60.
- Nomura had a Neutral rating but lowered its price target to $39 from $48.
- Wunderlich initiated coverage with a Hold rating and a $40 price target.
- Brean Capital had a Buy rating but lowered its price target to $55 from $61.
- Axiom Securities downgraded the company to a Hold rating from Buy and lowered its price target to $45 from $63.
- Pivotal Research upgraded Twitter to a Buy rating from Hold but lowered its price target to $50 from $54.
Most analyst firms see strong headwinds for Twitter going forward, but most of them still see an upside for the stock. On the flip side, this could be an ideal opportunity to buy into Twitter. At current prices the stock trades at 105 times its 2015 expected earnings.
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Note that CEO Dick Costello has been under pressure to resign or take the company in a different direction. Imagine that the pressure may be overwhelming now after this faux pas.
Shares of Twitter were down about 6.3% at $39.61 Wednesday afternoon, in a 52-week trading range of $29.51 to $55.99.
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