Analyst Says Expect The Worst In Twitter's Q3

Investors working under the assumption that the worst for Twitter Inc TWTR has passed may be mistaken, analysts at Cantor Fitzgerald said in a research report. The firm's Kip Paulson maintains a Neutral rating on Twitter's stock with an unchanged $16 price target.

Twitter is scheduled to report its third-quarter earnings on Thursday before the market open and expectations are quite low, Paulson said (see his track record here). The social media company is likely to report a continuation in revenue declines, flattish monthly active user growth amid an intense competition to win over social ad dollars from marketers.

While Twitter has reported a double-digit daily active user growth in each of the past four consecutive quarters, MAU trends flatlined in the second quarter and U.S. MAU actually fell by 2 million. As such, the trajectory of DAUs/MAUs will be "particularly important" in the third-quarter earnings report.

There are also concerns that Twitter's management will report declines in Promoted Tweets and other initiatives which may persist through year-end.

"As a result, we remain on the sidelines until we see tangible signs of MAU growth or sizable monetization improvement that offsets declines in Promoted Tweet and DR formats," the analyst wrote.

Here is a summary of some of the metrics the analyst is modeling for Twitter's third quarter:

• Revenue: decrease 5.7 percent year-over-year to $581.1 million.
• Ad revenue to decrease 9.0 percent year-over-year to $495.9 million.
• Ad revenue per MAU to decrease 12.6 percent year-over-year to $1.50.
• EBITDA: decrease of 19.7 percent year-over-year to $154.5 million.

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