Twitter's (TWTR) Challenges Persist - Susquehana
Susquehana analyst, Shyam Patil, is more cautious about Twitter (NYSE TWTR) as O&O ad growth is decelerating following quarters of weaker MAU metrics. The firm maintained a Neutral rating and cut its price target to $16 from $17.
Long-term fundamental concerns remain around the user growth trajectory and engagement. And we are starting to see O&O ad revenue growth decelerate meaningfully, which will only likely reverse if the company is able to grow its users, ratchet up ad load or increase pricing. Moreover, emerging competitive concerns, particularly from Instagram, give more reason to remain cautious.
Limited visibility means no more annual guide…only quarterly. 1Q revenue guide was 4% below consensus, implying a continued revenue deceleration to ~38% y/y from 48% y/y in 4Q. EBITDA guidance was 3% above consensus.
Key items from the call.
1)MAUs continue to struggle. MAU net adds were actually negative, coming in at negative 2m below Susquehana's +4m estimate and consensus ~+1m. The miss came domestically and internationally as both missed by ~2-3m each. Management cited seasonality and a decrease in resurrected users for the weakness. That said, management said that trends rebounded to 3Q levels (where TWTR added ~3m MAUs ex FF) driven by new and resurrected users and better retention.
2)Ad load continues to increase y/y and q/ q (primarily internationally) driven by an increase in advertiser demand, as total active advertisers grew 90% y/y (driven by SMB initiatives) to ~130k.
3)Monetization of the logged out user base has started. The program began in 4Q and will expand in 1Q. Our checks have been cautious and have cited the inventory as nothing more than remnant display where data and targeting remain weak. While the sheer number of impressions is likely large, we suspect the CPM is likely to remain low.
4)Integration with DoubleClick could be a bright spot. The integrated buying and measurement via DoubleClick (ad server and DSP) are intriguing as proving TWTR’s ROI and bringing advertiser scale have been key issues to ramp advertising. It sounds like the relationship is progressing but still early.
5) O&O growth continues to decelerate. O&O growth trends are concerning as the growth rate has been decelerating over the past few quarters with further deceleration to ~34% y/y in 4Q (vs. 42% in 3Q and 51% in 2Q). While the reason for the deceleration isn’t entirely clear, management has hinted previously that this may be due to growth in large brand ad dollars increasingly being driven by ARPA gains (i.e., greater share of wallet from existing large advertisers) vs. a combo of ARPA + net new advertisers previously.
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 $14.98 yesterday.