MKM Partners Lowers PT on Twitter (TWTR) to $61; Story Hasn't Changed, Recommends Buying on Weakness

MKM Partners maintains Twitter (NYSE: TWTR) at Buy, but lowers its price target from $64 to $61 following Q3 results out earlier in the week.

Analyst Rob Sanderson noted that Q3 results were strong with MAUs falling inline, but Q4 guidance was weak. Notable points from the company's conference call:

• Triangulation of three metrics assumed in guidance implies a flat MAU outlook for Q4. Mgmt. did not discourage the view that this signifies a range of MAUs for Q4.
• While the computation at the end points of these metrics does imply flat MAUs, we illustrate a scenario where 1% deviation in each metric implies 15-20k net additions
• We think this is conservatism. Mgmt. says that specific user initiatives added 3.3mn MAUs in Q3, up from 3.1mn in Q2 and that organic net additions would have been 11.8mn without a software issue in Asia. This trendline seems healthy and we think user growth will continue to show improvement through 2015 and beyond.

Sanderson said, We are revising our near-term estimates slightly higher on monetization gains and lower spending. We are adjusting on longer-term EPS power on lower user growth, which lowers our 12-month target to $61 from $64 per share. While user growth will again be the central focus and concern of investors for the quarter ahead, we don't think the story has changed. We believe TWTR is still the best revenue growth and margin expansion story of the large-caps in the Internet sector. We would accumulate the stock on controversy. While the upcoming Analyst Day may or may not be a positive catalyst, we think it is more likely to clarify user outlook than make it more cloudy.

FY14 revenue moves from $1.343 billion to $1.374 billion and FY15 from $2.32 billion to $2.23 billion.

For an analyst ratings summary and ratings history on Twitter, Inc. click here. For more ratings news on Twitter, Inc. click here.

Twitter, Inc. closed at $41.80 yesterday.

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