Twitter's (TWTR) 'Underweight' Rating Reiterated at Morgan Stanley
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(Updated - October 24, 2016 11:48 AM EDT)
Morgan Stanley reiterated an Underweight rating on Twitter, Inc. (NYSE: TWTR) with a price target of $13.25. Analyst Brian Nowak said the stock is too expensive, trading at 15X 2017 EBITDA despite being on the brink of ad declines.
"We model TWTR ad revenue to decelerate to 5% year-over-year growth in 3Q:16 and to begin declining – by ~1% – in 4Q:16," said Nowak. "These below consensus expectations – we are ~5% below Cons revenue in 4Q:16 and ~6% below in 2017 – keep our conviction levels high on our bearish TWTR call as we head into 3Q earnings (where TWTR should guide to 4Q:16)."
The analyst continued, "Our agency and advertiser conversations around TWTR's core owned and operated (O&O) ad business (making up ~90% of ad revenue) remain negative, with multiple parties now talking to 'year-over-year declines' in total TWTR ad spend (compared to a deceleration and/or no growth earlier in the year). Marketers point to other platforms with greater reach, lower effective pricing and superior targeting (like FB) taking more budget share. The addition of the NFL Thursday Night Football streaming is the one positive being called out, but as detailed herein, we estimate that TWTR will generate a total of only."
The analyst concluded, "Our latest data and consistent commentary around the inability to break into the 'mass market' makes us wary of TWTR's addressable audience, and the question marks around the company's ability to drive future user growth appear unlikely to go away in the near term. Time spent per existing user is also in decline."
Morgan Stanley's bull case on the stock is $24, and its bear case is $7.
Shares of Twitter, Inc. closed at $18.09 yesterday.
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