Cost Controls Earn Twitter A Q3 Beat, But Shares Losses Aren't Over Yet

Twitter Inc TWTR's earnings report showed several signs of improving fundamentals, but analysts at Wells Fargo aren't confident enough to call for upside in the stock. The firm's Peter Stabler maintains a Market Perform rating on Twitter's stock with a price target boosted from $16 to $19, which implies downside from Thursday's closing price of $20.31.

Twitter managed to show in its third-quarter earnings report that its advertising competitiveness is "slowly improving" as management focuses on higher-value video ad impressions, improved measurement capabilities and better content discoverability, the analyst said in a research report.

As a whole, Twitter's top-line performance improved sequentially and year-over-year growth declined just 1 percent as opposed to a 2 percent decline in the prior quarter. Advertising revenue growth (excluding TEllApart) was still negative in the third quarter but at the same time the company showed a 4-percent sequential improvement in worldwide Owned/Operated assets, which is encouraging, and a 22 percent growth in data licensing was solid.

At the corporate level, Twitter managed to control its expenses, especially in sales and marketing where a greater than expected leverage resulted in a 48 percent EBITDA beat versus the mid-point of the company's own guidance.

However, despite the many signs of improvements in Twitter's business in the quarter, the analyst continues to expect "meaningful share losses to continue."

"We expect slow, continued progress on ad revenue performance as management focuses on video formats, targeting and measurement, but we expect Twitter to remain an industry share donor for the foreseeable future given the depth of the competitive landscape," the analyst wrote.

Related Links:

Twitter Trades Above $20 For First Time In Months; Stifel Upgrades

Twitter Pulls A Fast One With Q3 Beat