KeyBanc Isn't Ready To Turn Bullish On Twitter Despite 'Strong' Q1

Twitter Inc TWTR's first-quarter earnings report was "strong" and signals ongoing momentum in the company's turnaround. The case to be bullish on the stock has yet to be made, however, according to KeyBanc.

The Analyst

KeyBanc Capital Markets' Andy Hargreaves maintains a Sector Weight rating on Twitter with no assigned price target.

The Thesis

The analyst said in a research note last week that Twitter's strong earnings report was highlighted by, among other things, a better-than-expected revenue print, a 10 percent growth in daily active users and strong monetization in the international market.

Digging beyond the headline numbers, however, reveals multiple "challenges" Twitter faced remains a concern, the analyst wrote.

Average revenue per user growth (among MAU) was 9.5 percent (excluding TellApart) in the quarter, which was "well below" the 45 percent growth seen in the international business. On a two-year basis, U.S. ARPU likely declined 13 percent versus a 40 percent growth in international ARPU over the same time period. It might be reasonable to conclude Twitter has shown a "lack of progress" in better monetizing its U.S. market amid heavy competition.

Hargreaves said Twitter's stock is trading near $31 per share, which represents a "fair" valuation at 23 times EV/EBITDA on the analyst's NTM EBITDA estimate of $845 million.

Price Action

Twitter closed the week at $29 per share.

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