Twitter (TWTR): Improving Mix and Traffic (Outside of MAUs) - Evercore ISI; PT Down to $17
Evercore ISI analyst, Ken Sena, verbally sounds like a bull on Twitter, Inc. (NYSE: TWTR) but keeps his Hold rating and reduces his price target to $17 from $19 on softening user trends, increasing competition and a rich valuation. Twitter needs to fix the product before it can fix the financials and perhaps this is the reason for the inconsistency.
MAUs offered a 2mm sequential decline to 305mm (excluding SMS Fast Followers) and guided revenues for 1Q15 were beneath expectations by 7% with limited revenue visibility for the year. However, while a reduction in the L/T MAU trajectory does bring down estimates and valuation (to $17 from $19), a better than expected O&O revenue figure delivered a better margin performance while engagement metrics (other than MAUs) are showing y/y improvement.
Traffic (Outside of MAUs) Was Up, which CFO Noto characterized as total global time spent on the platform increasing y/y, both in aggregate and on a per-user basis. Also, it was noted that daily active users as a % of MAUs was flat with 3Q, indicating some stability in engagement, though the DAU figure itself was not disclosed. The total number of searches was also up by a “double-digit” %, and the number of direct messages was higher y/y as well (+61%).
Revenues were skewed more heavily to O&O, benefiting EBITDA performance. Adj. EBITDA of $191mm (35% y/y and 27% of revenue) stood out to the upside, coming in 20% ahead of Evercore expectations and 9% ahead of consensus. Lower margin 3P revenue only accounted for 13% of revenues ($85mm) vs. our expectation for 17% ($110mm). This tilt towards higher margin O&O revenue combined with greater expense control drove the above expectations adj. EBITDA margins. Revenues as a whole were 2% above Evercore expectations at $710mm (48% y/y, 53% xFX). This strength was driven by continued increases in ad engagements which were +153% y/y, whereas CPE was down again this quarter as auto-play video ads continue to weigh on average CPE
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Shares of Twitter, Inc. closed at $14.98 yesterday.