JMP Initiates Coverage On Twitter With 6 Positive Points

JMP initiated coverage on Twitter Inc TWTR Monday with a Market Outperform rating and $49 price target.

Analysts led by Ronald V. Josey commented that with “284+ million monthly active users (MAUs) generating 500+ million tweets per day, we believe Twitter is the real-time Web that users increasingly turn to for instant news and information on most events, globally.”

Josey noted that with “unaided brand awareness of 80 percent, we believe Twitter and its ‘#’ are now firmly ingrained in global culture."

The firm’s positive view on Twitter was based on:

1) “a high barrier to entry given Twitter’s global reach and the inherent value of the real-time Web;

2) “differentiated content;

3) “product enhancements that we expect to lead to improved engagement and new users;

4) “deep advertiser relationships;

5) “early days in monetization given Twitter’s 1.3 percent ad load; and

6) “expanding margins.”

The analyst note acknowledged that “there may be some risk in the short-term around 4Q MAU growth, but we believe this is priced in at current levels and we expect MAUs to rebound in 1Q15 as overall engagement benefits from Twitter’s product improvements.”

The $49 price target was based on a DCF analysis with a WACC of 12 percent, a 9x terminal multiple, and three-year 2013-2016 CAGRs.

Twitter recently traded at $37.70, up 1.6 percent.