Twitter (TWTR) Did What It Needed to Do, Now They Need to Execute - RBC Capital

RBC Capital analyst Mark Mahaney weighed in on Twitter, Inc. (NYSE: TWTR) following the company's analyst day; maintaining an Sector Perform rating and price target of $47.

Mahaney commented, "TWTR management did what it needed to do @ its 1st Investor Day – detailing their strategies for increasing User base & Engagement levels, improving monetization, and driving robust long-term revenues & profits. Now it’s a matter of execution."

The analysts key points:

• Twitter Hosted Its 1st Investor Day – This was a detailed deep-dive into TWTR’s product, marketing, partnership, and monetization strategies. At a high level, we were impressed by the quality and detail of the presentations. This was an Investor Day done right. It was interesting to us that more than 200 investors attended the event. That and an 11X P/S multiple stock suggests, however, still relatively high expectations for a still controversial story. Which at some level limits the stock upside…
• CEO Takeaways – Dick Costolo presented TWTR’s 3 objectives: 1) strengthening the core – i.e. making the core service more useful and relevant, including creating instant timelines for new users and increasing the functionality of the private messaging tool. 2) reducing barriers to consumption including improving the organization of content and making that content more accessible to the 500MM non-logged-in users (new disclosure). 3) Introducing news apps and services, including promoting Fabric (allows any app to syndicate Twitter content with one line of code) and broadening the appeal of video app Vine. Costolo also restated Twitter’s broad goals of maximizing value for shareholders (check), accelerating the pace and breadth of product development (check, tho this had also been said a year ago too), and building the largest audience in the world (noble? – yes, realistic? – TBD…).
• Key Financial Takeaways – CFO Anthony Noto detailed assumptions behind “possible forecasts,” a somewhat creative, tho useful approach. Specifically, TWTR believes it faces $11B in incremental Rev (off a $1B+ Rev base today), based on boosting ad loads from 1.3% (new disclosure) to 5.0% (FB levels) over the next 5+ years, growing MAUs from 284MM today to 560MM, increasing frequency or the DAU/MAU ratio from 48% today to 51%, and by monetizing the 500MM+ logged-out users at roughly ½ the rate of current logged-in users. Of these, we believe the easiest to achieve should be the ad load increase. Monetizing logged-out users seems like mostly guess-work, but some material haircut to current logged-on user monetization levels seems appropriate. The real question is the User and Engagement growth assumptions, which we believe hark back to the unknowable of whether the current product and market plans will be successful. In a bit of a surprise, TWTR management did boost its long-term EBITDA margin goal from its IPO goal of 35%-40% to 40%-45%, citing scale efficiencies and the mix-shift to higher margin self-service ad solutions. Given the ramp of TWTR’s EBITDA margins over the past year – from 11% in ’13 to an est 19% in ’14 – and given the clear 50%+ EBITDA margins of close-comp FB, this long-term goal seems believable.

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

Shares of Twitter, Inc. closed at $42.54 yesterday.

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