Summit Redstone: Twitter Is An Underappreciated Turnaround Story

Twitter Inc TWTR has kicked off a reinvention process recently to battle revenue and user base deceleration.

The Analyst

Summit Redstone Partners' Jonathan Kees Sr. initiated coverage of Twitter with a Buy rating and $26 price target. 

The Thesis

User growth and engagement traffic have stabilized and even started growing, Kees said. (See the analyst's track record here.) 

Kees' price target of $26 is based on 6.6 times EV-to-2018 sales, which is only a slight premium to other stocks in the sector, he said.

The market may not be giving enough credit for Twitter's performance trends and turnaround, and it is missing the company's recent progress with video; the diversification of non-ad revenues; international growth; and market stumbles by Snap Inc SNAP, the analyst said.

With new content like streaming and product changes, Twitter's user growth has been showing signs of recovery, Kees said. 

The analyst named competition as a challenge for the company. Facebook Inc FB and Snap have been growing faster than Twitter in users and, together with Alphabet Inc GOOGL, they have taken a greater share of ad budget, Kees said.

Twitter has also been developing and improving its instant messaging platform, he said. The analyst also named a spike in content bidding as a challenge, making events like NFL coverage more expensive.

The Price Action

Twitter was up more than 10 percent Monday afternoon at $24.64. 

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