Wall Street Repudiates @Jack; Shares of $TWTR Reel Lower Amidst Flurry of Downgrades

Multiple firms are stepping aside on TWTR this morning and downgrading the stocks, following yesterday’s earnings disappointment. The overall hope is that live events will propel free cash flow and make Twitter great again. However, most analysts believe management is complacent and comfortable with the status quo, one that is okay with tepid new user growth.

As such, shares are reeling and will likely continue to struggle until next quarter.

27-Jul-16 07:28 ET | TWTR | (18.45 )
Twitter downgraded to Hold from Buy at Cantor Fitzgerald following earnings

27-Jul-16 06:53 ET | TWTR | (18.45 )
Twitter target lowered to $17 from $20 at RBC Capital Mkts — “#MissAndLower”
Firm noted rev of $602MM missed Street at $608MM, importantly with Ad Rev of $534MM below ests of $540MM. But EBITDA of $175MM (29% Margin) was above Street expectations at $154MM. TWTR Q3 Rev guide of $590-610MM was about 14% below the Street at the mid-pt; EBITDA disappointed, too (18% below Street at mid-pt). Ad Pricing pressure seems to be a significant factor, which syncs with the Twitter advertiser challenges firm has detected in their survey work. They remain cautious on co’s ability to show meaningful user growth in the NT, but mgmt sounded confident in product & marketing improvements.

Axiom Capital downgrades TWTR to Hold from Buy and lowers their tgt to $16 from $18 following the Q2 report. In late May, with the shares at ~$13 and near their bear case valuation scenario, firm viewed the risk-reward of owning the shares at that level as favorable, with news events in the quarter presumably driving usage, live events and Periscope driving engagement and ad growth, and M&A potential driving the stock toward their previous $18 price target, which the stock met heading into the earnings results. However, firm was disappointed by the continued weak user growth (+3% YoY, +3M MAUs), the miss on advertising revs, and the guidance materially below their 3Q ests, implying O&O advertising growth in the HSD. Mgmt cited increased competition for social media ad budgets, a continuation of lower advertiser demand, and ad pricing at a premium to other platforms. These headwinds are expected to persist and there is very little visibility into the timing of O&O advertising growth re-acceleration. Co’s saving grace, and quite frankly its last stand, is live events/Periscope which should in theory drive up engagement and drive advertising to the platform. They are optimistic on live events but firm is unsure if this will be enough at this time to offset the current challenges. As a result they are moving to the sidelines.

Wedbush lowers their TWTR tgt to $14 from $20 following earnings. Firm notes co remains “the place to go” for live broadcast, but mgmt appears complacent about the status quo and unfocused on the lack of user growth. Until co is focused on attracting new users, driving increased use by its existing users, and demonstrating its value proposition to people who don’t use the service, firm expects it to grow very slowly. They think that its service is too complicated and difficult to use for the average Internet user despite multiple changes. They attribute recent share price appreciation to speculation that co may be acquired, but in their view, there is no clear-cut potential buyer

Canaccord Genuity downgrades TWTR to Hold from Buy and lowers their tgt to $16 from $20 following earnings. Firm notes, “We are late to downgrade the stock, and we think downside is fairly limited, but for us the character of the potential turnaround has changed over the past two quarters from “fix the product and revenue will follow” to “build a live mobile video business.” While we believe the company has a good chance of achieving this, it will likely take several quarters to know. Twitter could still be an attractive acquisition, and we view this as significant upside risk, but for now we believe fundamentals will be sufficiently challenged to move to the sidelines.”