Twitter shares are up more than 1% on Friday after the company reported earnings that exceeded expectations on both the top and bottom lines. Twitter earned 20 cents per share on $1.19 billion in revenue. According to Refinitiv, analysts expected earnings per share of 7 cents on revenue of $1.07 billion.
According to a shareholder letter, the Jack Dorsey-led company’s revenue increased 74 percent year over year in the third quarter, citing “a broad increase in advertiser demand.”
Twitter, which is up 30% in 2021, expects third-quarter revenue of $1.22 billion to $1.30 billion. Refinitiv polled analysts predicted $1.17 billion in revenue. Twitter expects headcount and total expenses to rise by at least 30% in 2021; however, revenue will grow faster than expenses, according to the social media company.
Wall Street was concerned about the number of monetizable daily active users, or DAUs. These are Twitter users who view advertisements on the site, a metric that has increased by 11% to 206 million. This was slightly lower than the Street Account’s estimate of 206.2 million. Analysts were also disappointed with domestic daily active users, which increased by only 3% since the previous quarter.
Twitter launched several new product areas in subscriptions, creator monetization, and commerce during the quarter, including its first subscription service, the Spaces audio chat feature on mobile devices, and a Tip Jar feature that allows users to send money to others on the site.
“With the exception of the United States [daily active users], the results were about as good as we’ve seen from Twitter,” Barclays analyst Ross Sandler told clients.
“The digital ad market is having its best quarter in many years, thanks to a secular shift from analog ads and easy comps from the initial pandemic hit, and Twitter is in a good position to pick up brand dollars.” We are increasing revenue while decreasing EBITDA due to the higher expense run rate. “Shares deserve a higher multiple based on improved product cadence and financial performance,” Sandler added, despite remaining underweight on the stock.
Susquehanna Financial Group, which favors Twitter, expects the advertising momentum to last through the summer, “as evidenced by the strong 3Q guide, and TWTR’s confidence appears to be high given the ramping investments,” analyst Shyam Patil told clients.
“While user growth will continue to be a question, we remain optimistic that Twitter can expand its still (very) limited reach as a differentiated news and content platform, with strong distribution on other media,” said Bank of America research analyst Justin Post. Twitter rates the company as a buy.
According to FactSet, only 10 of the 40 analysts who cover Twitter have a buy rating and 27 recommend holding the stock. Several Wall Street firms raised their price targets for Twitter following a strong quarter, but the neutral ratings remained unchanged, as Wall Street appears to be waiting to see if the new efforts to improve engagement will result in an increase in daily active users.
“While seasonality and reopening played a role in the decline,” AB Bernstein analyst Mark Shmulik told clients, “continued efforts around improved features (Spaces) and onboarding…may not be driving the desired engagement lift.” “If we don’t see an inflection soon, investor patience may be tested.”
Take a look at some of the other comments in the section below.
JPMorgan: Overweight, $90 price target
“Pushback will center on in-line [monetizable daily active users], including a slight Q/Q decline in the United States, but the user trajectory is playing out as TWTR anticipated, and 2H21 should see modest acceleration in growth.” New products are still in the early stages, but we are encouraged by the faster development velocity, and TWTR has mentioned the possibility of bitcoin being integrated into Super Follows, subscriptions, and Tip Jar over time.”
Oppenheimer: Outperform, target price of $85
“Increasing target to $85 (from $70) following strong 2Q results as brand advertisers return to the platform after a 1Q lull, resulting in a 13% top-line beat vs. expectations. While US mDAUs are down 3% year on year, we are optimistic about advertising momentum in the second half, driven by strong demand from large advertisers, as evidenced by 3Q guidance that is 8% higher than Wall Street expectations.”
Loop Capital Markets recommends a buy with a price target of $73.
“Bulls will point to strong growth in ad revenue, up 87 percent year on year against the COVID cycle’s easiest comp and 14 percent ahead of consensus. The rise was fueled by a surge in brand advertising, which is gaining traction in the broader economic recovery, and Twitter is 85 percent brand. This is likely to continue in the United States and spread globally if COVID recovers later.”
KeyBanc Capital Markets: Outperform, target price of $81
“Twitter’s second-quarter results increase our confidence that the company’s target of doubling revenue by 2023E remains achievable. While bears will focus on the q/q decline in [monetizable daily active users] in the United States (results were in line with our expectations), we prefer to focus on: 1) continued success with Topics; 2) ad products driving monetization improvements; and 3) a faster pace of product iteration.”
MKM Partners recommends a buy with a price target of $83.00.
AB Bernstein rates the stock as market-perform, with a price target of $80.
“It’s difficult not to notice the 1 million sequential decline in US users to 37 million. While seasonality and reopening contributed to the drop, ongoing efforts to improve features (Spaces) and onboarding – now 9.5K topics to follow (up 2.5K Q/Q) with 41 percent adoption – may not be driving the desired engagement lift. If we don’t see an inflection soon, investor patience may be tested.”
Baird is neutral, with a price target of $80.
“We’ve been somewhat more positive on shares as Twitter benefits from meaningful improvements to revenue-generating products (including a faster pace of innovation), a solid event calendar, and impressive monetization gains (with more to come); however, we believe the next critical stage is to drive faster audience growth while maintaining engagement levels. We continue to believe that the 2023 revenue target is not out of reach, even though we are modeling total users slightly lower than management’s forecast.”
UBS: Neutral, target price of $69
“On this print, we see very little to pick at. We believe that the MAP/DR opportunity is still a “show me” story, but their willingness to commit to their LT roadmap by investing ST gives us more confidence in management’s conviction.”
Morgan Stanley: Equal Weight, $68 price target
“On TWTR, we raise our ’22 revenue/EBITDA by 7% /3% as a better-than-expected forward revenue outlook is offset in part by higher opex/headcount investments. Overall, we raise our TWTR PT to $68 (down 10%), which is a combination of our [discounted cash flow] and a target 22X NTM EBITDA multiple (implies 9x ’22 revenue).”
Jefferies is neutral, with a price target of $80.
“While we are pleased with TWTR’s second-quarter results, we are neutral on the stock because the valuation multiple is more than two times that of FB, despite slower growth and lower LT operating margins.”
Evercore ISI: In line, with a price target of $81
“Neutral commentary on future [monetizable daily active users] growth leads us to wonder when improved product cadence will translate into premium user growth. The recovery of ‘Net Advertising’s Super Checkmark is undeniably intact.”
Cowen: Market-Perform, $64 price target
“Additionally, management noted that because brand advertising accounts for roughly 85% of the business, the skew toward brand advertisers likely protects them from any negative effects of the iOS 14.5 ad tracking changes.”
Guggenheim is neutral, with a price target of $74.
“We have increased our revenue forecast for the third quarter to reflect improved advertising monetization, raising our price target to $74 per share. However, our projected two-year ad revenue growth (vs. pre-COVID 2019) continues to lag peers, resulting in a more modest relative target valuation multiple and a Neutral rating.”
Mizuho Securities is neutral, with a price target of $70.
“As a result of the outperformance, we are increasing our FY23 EBITDA by 5% to $2.9 billion. Maintain Neutral rating while increasing PT from $65 to $70, representing 20x FY23 EBITDA versus our estimated CAGR of 36%. If TWTR is successful in leveraging 1P data to scale DR and expands its subscription offerings, we may be more positive about the name.”
Rosenblatt Securities is neutral, with a price target of $65 per share.
“While we applaud management’s ongoing efforts to add utilities for current and prospective users, such as Topics and Spaces, a larger audience still requires a much simpler UI. Furthermore, with Twitter’s U.S. audience being among the smallest in social, its ad returns must outperform the competition, which isn’t going to happen anytime soon. The graph below depicts the choppy event-driven revenue growth history, as well as the muted [daily active users] trajectory in the United States.”
Wedbush: Neutral with a price target of $76.
“Twitter certainly accelerated user growth during Covid, but it also set targets for a 20 percent CAGR over three years at its Investor Day in February, which means product efforts must result in an inflection point in user growth sooner rather than later to meet that target. Management also increased its cost growth forecast to +30% from +25%, but stated that revenue would still outgrow costs, effectively raising its FY revenue target.”
Atlantic Equities: Neutral, target price of $70
“Q2 revenue and adj EBITDA increased as Twitter saw strong demand for brand advertising and continued to make progress with its direct response offerings.” The revenue forecast for the third quarter also exceeded expectations.