Deutsche Bank Sees Twitter (TWTR) with Strong Q4 Guidance; Sees M&A Multiple Comparable to LinkedIn (LNKD)
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Deutsche Bank is out with a bit of positive commentary on Buy-rated Twitter (NYSE: TWTR) today. The firm reiterates its $22 price target on the stock.
Analyst Ross Sandler and his team offered the following observations with today's report:
Amidst intense volatility around whether TWTR is acquired or not, we shift back to what we can track, ie - the fundamentals. Our checks point to a “high-end of the range” revenue print from TWTR with “slightly up” MAUs for 3Q, and we think 4Q guidance could meet/exceed consensus for the first time in a year. The NFL live video project is the first major new initiative that has been by all accounts a smashing success (revenue and overall experience) for Twitter in the past couple years, hence mgmt’s tone should remain upbeat. At $17, shares are back to levels before the M&A speculation began, and represent a good risk/reward considering our expectations for the 3Q print.
Our checks point to largely “in-line” results once again for 3Q16. MAU should trend up “low single digits” like we’ve seen over the past couple quarters, slightly above our 314m estimate (DBe +1m). Engagement continues to improve from small tweaks to the core timeline, but not broadly noticeable in reported metrics. The NFL experiment has been a big success, with Amplify ad commitments well above initial expectation and several times the licensing costs, and audience in the first couple games also above what Twitter envisioned. The DR revenue initiative continues to come together across desktop and mobile (Android), and should help modestly in 2016, with some advertisers going “uncapped” in 2017.
We can’t speculate on M+A, but have consistently stated that if it came to an actual acquisition by a larger entity, TWTR would likely go for a multiple comparable to LNKD or 5.4x forward revenue, which implies around $25-$26 – although it appears that this may be off the table currently. Twitter owns the real-time search/content space (not FB, GOOGL, Snapchat, etc), which is becoming more strategic as the world moves to a 24-hour real-time information cycle with smartphones. Further, its early success in live/interactive video points to where all future consumption could go, and along with Twitch and Facebook, we see few companies who have nailed the experience.
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