“We do not expect to see sustained meaningful growth in [monthly active users] until we start to reach the mass market,” Twitter’s interim CEO Jack Dorsey warned. “We expect that will take a considerable period of time.”
This gloom dominated the tone of Twitter’s earnings announcement. Despite better-than-expected Q2 profits, Twitter shares plummeted.
“We have not communicated why people should use Twitter nor made it easy for them to understand how to use twitter,” Dorsey added.
“The bottom line for TWTR is that after nine years of its existence, my mother still doesn’t understand what it means to “hashtag” something, but she does understand what it means to “like” something,” Macquarie analyst Ben Schachter said. “That is to say that Twitter is still too difficult to use and inaccessible to too many.”
With shares down around 11% after the news, is it time to buy?
Wall Street analysts covering Twitter are split. Of the six research notes read by Business Insider, three analysts maintained a “buy” or “outperform” rating on the stock. The other three were neutral. No one is saying to sell.
Here’s some of what they had to say:
Price Target: $US52
Comment: 'Per usual, Twitter beat Q2 estimates but missed user targets. Monetisation bulls and user bears have another reason to stay entrenched in this battleground stock. Results were close enough to normal that the announcement of the new CEO, which we expect in Q4, should be the next catalyst for long-term sentiment; we remain positive on TWTR in front of a new direction.'
Price Target: $US50
Comment: 'Our PT is based on our blended valuation approach (EV/Sales, EV/EBITDA, EV/FCF).'
Price Target: $US49 (revised down from $US56)
Comment: 'Management expects similar growth in MAUs until Twitter can reach the mass market, something contingent on improving the user experience and marketing the value proposition of being an engaged Twitter user. While this carries a high degree of difficulty we do believe the company can accomplish those goals and with TWTR trading at a 1.5X the median sector multiple despite more than 2X sector EBITDA growth, we see the risk/reward as favourable.'
Price Target: $US40 (revised down from $US44)
Comment: 'In the near term, we expect concerns on users/usage to weigh on stock as street takes a wait and see approach to the Project Lightening (curated feeds and news) launch in the fall. In the long-term, Twitter needs to become a mass market platform and we are not convinced added marketing will put the platform over the hump (it is a product problem, in our view). Given slowing user and rev. growth, we expect a smaller multiple gap to Facebook, and we are lowering our price objective to $US40 based on 30x 2016 EBITDA (vs. Facebook trading at18x). We think Twitter could continue to see some valuation support on acquisition news.'
Price Target: $US36 (revised down from $US39)
Comment: 'While user growth expectations were already lowered going into Q2, commentary around the inability to break into 'mass market' bring into question the addressable market. TWTR ultimately needs to drive ad load and pricing higher to work, and at current levels stock remains expensive in our view.'
Price Target: $US34 (revised down from $US40)
Comment: 'The bottom line for TWTR is that after nine years of its existence, my mother still doesn't understand what it means to 'hashtag' something, but she does understand what it means to 'like' something. That is to say that Twitter is still too difficult to use and inaccessible to too many. It still isn't a mass market product and it is unclear if it ever will be. User growth is the key issue. Monetisation isn't the problem. The roadmap for monetisation has already been shown by Facebook; TWTR can just follow it (and, in fact, is). However, if it can't improve the product and make it more interesting and accessible to more users, the stock simply will not work.'
Business Insider Emails & Alerts
Site highlights each day to your inbox.