'This Will Take Time To Fix': Wall Street Weighs In On Twitter

Twitter Inc TWTR has been one of the biggest disappointments in a relatively strong start to earnings season, with shares plummeting more than 20% following its third-quarter print.

Twitter blamed platform bugs and advertising headwinds for its earnings and revenue misses in the third quarter. To make matters worse, management said these same issues could carry over into 2020. While monetizable daily active users continues to grow, advertising revenue dropped by $25 million compared to the second quarter.

Several analysts have weighed in on Twitter stock since the big earnings sell-off. Here’s a sampling of what they’ve had to say.

Execution Is Key

Nomura Instinet analyst Mark Kelley said advertising headwinds overshadowed solid user growth for Twitter.

“3Q net adds were solid in both the U.S. and abroad, but a couple of advertising product issues (bugs with sharing of device settings information and MAP data for measurement and targeting), coupled with fewer marquee events, equated to a revenue shortfall,” Kelley wrote in a note.

Olivetree tech strategist Dan Forman said Twitter’s third-quarter issues appear to have been self-inflicted.

“Thus, while we have been extremely bullish on the stock, we think this speaks to one of the main issues that is a concern for a co. that has a part-time CEO: Execution,” Forman wrote.

Wedbush analyst Michael Pachter said uncertainty surrounding user growth and execution coupled with a full valuation for the stock should keep Twitter investors on the sidelines for now.

“Although it is clear that Twitter is focused on delivering advertising to its growing active user base, it is equally clear that it hasn’t yet figured out how to do so in a way that effectively allows it to maximize revenue,” Pachter wrote.

Looking Ahead To 2020

Morgan Stanley analyst Brian Nowak cut his 2020 ad revenue forecast by 4% due to Twitter’s poor execution on MAP and data usage.

“This will take time to fix...and we also expect TWTR to invest to improve its ad products and expand its advertiser base; engagement and ad innovation are key for '20,” Nowak wrote.

Bank of America analyst Justin Post said 17% growth in daily active users was a bright spot on the quarter, but average revenue per user was down 6% compared to a year ago.

“Despite a 3Q setback that will include ongoing privacy questions, we continue to look forward to a strong event year in 2020 (election/Olympics), and with DAU growth accelerating, we think an improved MAP product has a bigger opportunity ahead,” Post wrote.

Ratings And Price Targets

• Nomura Instinet has a Neutral rating and $34 target.
• Morgan Stanley has an Equal-Weight rating and $32 target.
• Wedbush has a Neutral rating and $34.50 target.
• Bank of America has a Buy rating and $46 target.

The stock traded around $30.16 per share at time of publication.

Benzinga’s Take

A big third-quarter earnings miss is disappointing for Twitter investors after it looked like the company had finally started to find its financial stride in recent quarters. Investors should keep a close eye on Twitter in the next couple of quarters to see if the company recovers from its execution issues ahead of what could be a big year for Twitter in 2020.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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