Evercore Trims Ests on Twitter (TWTR) Following Q3 Results; Workforce Reduction, Q4 Outlook Provide Uncertainty
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Evercore ISI affirms Twitter (NYSE: TWTR) at Hold with a price target of $17 following Q3 results and outlook offered earlier in the session.
Analyst Ken Sena commented,
Despite better than expected user growth stemming from machine learning related product improvements, which drove higher than expected top and bottom-line performance for the quarter, formal FY16 revenue guidance was suspended due to uncertainty stemming from a sales restructuring to occur over 4Q. Specifically for the quarter, MAUs of 317mm (3% y/y) were 3mm/1mm higher than us/Street which along with better ad engagement growth drove revenue 1%/2% above us/Street at $616mm (8% y/y). Adj. EBITDA of $181mm (28% y/y) beat our estimate by $32mm or 21%, mostly due to the decrease in R&D spend.
Nevertheless, in light of the wide 4Q16 revenue range (-3% to +11% y/y) implied by the adj. EBITDA and margin guide, we are lowering 4Q revenues 2% to $755mm (6% y/y) and Adj. EBITDA 5% to $176mm (-8% y/y and 12% of revenue), though both still remain above the midpoint of guidance. Thus, while 3Q results did outperform, uncertainty around the upcoming salesforce restructuring and implied 4Q revenue deceleration leads us to modestly trim N/T estimates while our $17 price target is left unchanged.
While no formal revenue guidance was provided for 4Q or 2016, given the implied range of -3% to +11% y/y for 4Q (which the FY EBITDA margin targets offer), or $2.5bn (13% y/y) to $2.6bn (17% y/y) for the year, 4Q revenue was effectively forecasted ~4% below our prior estimate of $770mm (8% y/y) and adj. EBITDA 8% below our prior estimate of $185mm (-4% y/y and 24% of revenue) at the midpoint. This, coupled with the coming sales force layoffs and reorganization, lead us to factor additional conservatism as we lower 4Q revenues 2% to $755mm (6% y/y) and Adj. EBITDA 5% to $176mm (-8% y/y and 12% of revenue). Meanwhile, for 2017, although our revenue estimate of $2.78bn (8% y/y) remains largely unchanged, our Adj. EBITDA does rise 3% to $805mm (13% y/y) on higher margin assumptions (now 29% of revenue vs. 28% previously), which mostly stems from additional leverage assumed within Sales & Marketing / Research & Development.
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