Twitter Analyst Support Piles Up as Turnaround Gains Steam
(Bloomberg) -- Twitter Inc. is accumulating likes from some of its most important followers: Wall Street analysts.
The social media company, in the third year of Chief Executive Officer Jack Dorsey’s turnaround effort, has been upgraded by at least six analysts since reporting better-than-expected third-quarter results in late October. That’s helped fuel a more than 40 percent rally in the stock.
Facebook Inc.’s recent decision to emphasize content generated by users’ friends and family in their news feeds, pulling back from posts created by brands, businesses and news outlets, was cited by Victor Anthony, an analyst at Aegis Capital, when he raised his rating on Twitter’s stock Monday to buy from sell. Anthony said Facebook’s shift will probably boost Twitter’s importance to media outlets and businesses.
Daniel Ives, chief strategy officer at GBH Insights LLC, agrees that Twitter now has a unique chance to win more business from advertisers and publishers.
“Facebook is still the behemoth, but publishers have to hedge their bets and have to at least start to tiptoe back into the Twitter platform,” Ives said in an interview.
The wave of optimism is notable for a stock that appeared to be flat-lining just nine months ago, when shares were trading within spitting distance of a May 2016 record low of $14.01. The stock declined 1.3 percent to $23.72 at 12:12 p.m. Friday in New York, still shy of the Nov. 2013 initial offering price of $26. A more positive view of the platform from advertisers and greater activity by users are making Twitter more attractive to investors and potential strategic buyers, analysts say.
Twitter, the social media company known for its original 140-character limit on messages, has long been favored by journalists, entertainers, athletes and politicians as a place to comment on news and personalities. A key part of Dorsey’s strategy has been to try to make Twitter a destination for a wider audience to see “what’s happening now,” by entering into video streaming partnerships with news outlets and sports leagues. But it hasn’t been able to topple Facebook, where about 45 percent of Americans get their news, versus 11 percent for Twitter, according to a Pew Research Survey conducted in August 2017. Bloomberg LP produces TicToc, a global breaking news service for Twitter’s site.
Last week, BTIG analyst Richard Greenfield raised his target for shares to $30 from $25, saying that users are returning more frequently and spending more time on the platform on a daily basis. The trend is partly a result of Twitter’s improved algorithm that shows users the most relevant tweets first, he said. Shyam Patil, an analyst at Susquehanna Financial Group, recently said improvements in Twitter’s live video advertising could make the company a “surprise performer in 2018.”
Still, not all analysts are convinced Twitter’s performance troubles are in the past.
“Things are moving in their favor, but fundamentally the company is no different from about a year ago when the stock was around $17,” said James Cakmak, an analyst at Monness Crespi Hardt & Co. He has the equivalent of a hold rating on Twitter.
Vertical Group initiated coverage of Twitter with the equivalent of a sell rating, saying there is “no ad growth turnaround in sight.”
With 330 million monthly active users, Twitter has just a fraction of the digital advertising market compared with Facebook and its average of 2 billion monthly users. Keenan Beasley, co-founder of BLKBOX, a creative agency with clients that include Samsung Electronics Co. and Coty Inc.’s Covergirl, said his clients won’t be significantly shifting their ad budgets away from Facebook in light of its recent changes.
“What brands can’t ignore is that you have most of the world on a Facebook property,” Beasley said. “Twitter needs to get everyday people back engaged on its platform.”
Another obstacle is Twitter’s reputation as a honeypot for trolls, harassers and fake news. Last year, Twitter acknowledged that the system it used to verify users’ authenticity was “broken,” after facing criticism that it was seen as endorsing trolls and white supremacists. On New Year’s Eve, newscaster Anderson Cooper said on CNN that he had basically “dropped off” Twitter, which “seems very toxic” to him. Some activists, celebrities and journalists boycotted Twitter for a day last year to protest the company’s decision to temporarily lock the account of Rose McGowan, an outspoken critic of Hollywood producer Harvey Weinstein’s alleged sexual harassment.
Twitter has also struggled to distance itself from the perception that it’s a breeding ground for propaganda. Last year, it identified almost 3,000 accounts associated with the Russian pro-Kremlin Internet Research Agency and more than 1 million automated, election-related tweets from Russian-linked accounts. Twitter still faces numerous questions from Congress about the extent of that influence. Users are also waiting for the company to roll out its promised “transparency center” that will show information on political ads, such as how much candidates’ campaigns spent, the identity of the organization funding the campaign, and what demographics the ad targeted.
A key statistic for Twitter when it reports earnings on Feb. 8 is the number of daily active users. Twitter only discloses the growth rate, which was 14 percent in the third quarter, compared with the same period a year earlier. Monness Crespi’s Cakmak estimates the total is about 125 million. Snap Inc. said its disappearing-photo app Snapchat had 178 million daily active users in the third quarter.
Twitter is increasingly the subject of acquisition speculation. The company, which explored a potential sale in late 2016, could be a strategic purchase for Microsoft Corp., Comcast Corp. or 21st Century Fox Inc., after that company completes the sale of its studio, cable channels and international assets to Disney, BTIG’s Greenfield said last week.
“As investor confidence in Twitter’s turnaround builds throughout 2018, we believe it will be too valuable to remain independent,” Greenfield said.
©2018 Bloomberg L.P.