Mizuho Securities Downgrades Twitter, Inc. (TWTR) to Underperform; Skeptical M&A Will Happen
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Mizuho Securities downgraded Twitter, Inc. (NYSE: TWTR) from Neutral to Underperform with a price target of $15.00 citing valuation after the recent run-up on M&A speculation.
Analyst Neil Doshi commented, "We are downgrading shares of TWTR to Underperform based on valuation. The stock is up ~45% since 2Q earnings, primarily driven by M&A comments in media reports. We are skeptical of these potential business combinations and believe that the stock is overvalued as business fundamentals have deteriorated significantly over the past 12 months. We are maintaining our $15 target price, which implies 9.5x '17 EV/EBITDA and 20x '17 Non-GAAP P/E."
Doshi said many of the M&A rumors are unlikely to play out, based on their analysis. "In our view, we would put Salesforce and Alphabet in the "maybe" camp, but have some reservations about these deals happening, and we believe that investors would view these transactions as negative for both companies," he said.
Meanwhile, core fundamentals continue to deteriorate. "U.S. ad revenue growth in 2Q was 18% YoY, well below GOOGL (25%) and FB (69%). Twitter's global MAU growth has been 3% over the past two quarters, well below LNKD and FB. Finally, it is unclear what impact live streaming sports will have on the business, especially as Google and Facebook push harder into live video."
Shares of Twitter, Inc. closed at $23.72 yesterday.
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