Twitter (TWTR) Engagement Appear to be Improving and MAUs are Solid - Analyst

Twitter, Inc. (NYSE: TWTR) is modestly higher Tuesday (+0.6%) following some rare, positive analyst commentary. In a note to clients today, Canaccord Genuity analyst Michael Graham said their proprietary sampling supports their Q4 MAU outlook and engagement is improving. The firm, however, maintained their Hold rating and $18 price target, saying revenue headwinds may still persist.

"Based on data so far this quarter (and extrapolating out to quarter-end) our TWTR engagement survey looks like it will grow 5.3% sequentially in Q4 over Q3," Graham said. "Of that, we estimate that ~25% is attributable to new member growth and ~75% is due to engagement improvements in the existing base. Therefore, our sampling suggests MAU growth in Q4 of 1.4% sequentially (4.4M net adds)."

"While growth is still sluggish, if our sampling results prove consistent with reported results again this quarter, this should mitigate one risk for the stock in Q4," the analyst added.

Graham noted the following key points:

• Engagement seems to be improving - Our survey of the Twitter user base across about 100 countries suggests Q4 growth in our engagement index should reach 5.3% sequentially by quarter-end. This is up slightly from 4.0% sequential growth in Q3. We did not witness a significant uptick in any particular region, though there seem to be gradual improvements in a few countries.
• Proprietary sampling supportive of our Q4 MAU estimate - By estimating that 25% of growth in the engagement index is due to new member growth, we estimate that Q4 MAU net adds could be as high as 4.4M, above our current model estimate of 3.5M and consensus at 1.6M.
• Business challenges still persist - Following news of a sizable workforce reduction in Q3, management issued a wide range of revenue guidance for Q4 and also provided a 2017 profit outlook that seems to imply continued revenue strength. Growth and engagement from Twitter's user base beyond the levels we are seeing now may be needed to achieve these ambitions.
• Valuation - Our price target remains $18, based on 20x our 2018 EPS estimate of $0.88.

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 $18.23 yesterday.

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