It's All About Ad Dollars For Twitter This Q3

Until Twitter Inc TWTR's incremental ad dollars arrive, Deutsche Bank is staying on the sidelines. 

Deutsche's model for 10 percent year-over-year daily active user growth has modest upside despite tougher comps, analyst Lloyd Walmsley said in a Tuesday note. 

He maintained a Hold on Twitter with a $17 price target. 

Deutsche's expectations are premised on Twitter continuing to develop its timeline algorithm and notifications, and better performance in retaining top-of-the-funnel metrics from last quarter, Walmsley said. (See Walmsley's track record here.) 

Conversations in the ad industr suggest that Twitter's core sales pitch has "increasing resonance," Walmsley said. With more advertising coming to the platform, the analyst projects that revenue growth will follow. 

User Growth Is Key 

ComScore data shows that unique visitor growth to Twitter appears to be showing improvement, according to Deutsche Bank. If DAU comps worsen, it will pose a new challenge for the social media platform, according to the research firm. 

"We see promising international expansion efforts as more nascent," Walmsley said. 

For the third quarter, Deutsche projects DAU growth of 10 percent before a drops off to 8 percent in the fourth quarter, as comps worsen. The firm's estimate for MAU growth in the third quarter is 4 percent, with the growth slowing to 3 percent in the fourth quarter.

With continuing mixed feedback around ad performance, Deutsche is hesitant on medium term trends, the analyst said. 

"We think improving MAU and DAU growth could help further improve advertiser interest in the platform, and we would get more positive on any further acceleration in DAUs, particularly into more challenging comps with better feedback from the ad community specific to performance." 

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