During Costolo’s mostly stormy tenure, he presided over Twitter’s transition from start-up to large public company, and the stock rebounded during 2014 from post-IPO wobbles. But the two most recent quarters featured shortfalls and disappointing guidance, and the CEO’s ouster seemed inevitable.
Merrill Lynch remains Neutral on Twitter with a $44 price objective. The brokerage firm supposes that the CEO change could be a long-term positive, but the it is taking this stance due to weak expected monthly active user trends in the second quarter. However Merrill Lynch remained constructive on Twitter’s monetization opportunity given content and user quality, but at the same time it is cautious on user and engagement growth versus social peers and valuation.
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According to the firm:
Mr. Costolo’s departure could renew speculation that Twitter is an acquisition target, in our view. According to press reports, Google has been eyeing Twitter over the last few months. However, on the call, Mr. Dorsey suggested that there will be no change to the strategic direction of the company, and we think Twitter would have few potential suitors (ex-Google which would have regulatory issues) given valuation. Assuming Twitter isn’t looking to be acquired, and given the popularity and potential of Twitter, we think the best suited CEO candidate would be someone with significant product and engineering expertise.
Argus reiterated a Buy rating for Twitter. Going forward, Argus believes that Twitter has twin mandates: grow the user base and monetize heavy users via growth in advertising revenue. The firm regards monetization as the more pressing challenge, and the one with the greatest potential to unlock upside in the stock.
The independent research firm believes relative underperformance in the shares creates a favorable entry point for investing in what it regards as a durable Internet brand with significant growth opportunities.
S&P Capital IQ upgraded Twitter to a Buy rating with a $50 price target. The firm believes that Twitter has the opportunity to grow its user base, increase engagement and better monetize its offerings.
Morningstar stuck to its narrow moat rating and $36 fair value estimate for now.
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Shares of Twitter were down nearly 4% at $34.51 on Monday morning. The stock has a consensus analyst price target of $47.52 on a 52-week trading range of $34.31 to $55.99.
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