Cantor Fitzgerald's Twitter analyst Youssef Squali upgraded Twitter from Sell to Neutral while maintaining his $45 price target (stock closed at $42.49 on Wednesday). The reasons for his upgrade are 1) a positive read on March quarter results, 2) the imminent launch of several new ad formats to drive monetization, and 3) a pullback in valuation making him less negative (the shares hit a peak of $73.31 on December 26). A large lock-up expiration in early May and a full valuation is keeping him from getting more constructive (meaning upgrade to Buy).
Valuations are still at nose bleed levels
Squali is projecting Twitter to generate non-GAAP EPS of $0.26, $0.69 and $1.40 in 2015, 2016 and 2017, respectively. This translates to PE multiples of 163x, 62x and 30x for those years. Closer in on Squali's 2014 and 2015 revenue estimates of $1.34 and $2.6 billion (the Street average is $1.24 and $1.99 billion) the shares are at 22.2x and 11.4x on market cap to revenue ratios (link to a Google Doc with the estimates and valuations). It appears that Squali has either incorporated positive impacts from Twitter's new ad formats or is just overall more bullish than other analysts (but probably not given his Neutral rating).
15 new ad formats are coming
There are numerous reports and indications from various companies that Twitter is launching new types of ads including using its 'card' technology to download apps which then take the user back to Twitter. With Twitter's slowing growth rates of monthly active users and Timeline views the company does need to implement ways to leverage its user base.
Per comScore 's February data Twitter's U.S. unique user growth was the strongest among peers at 23.9% year to year to 68.8 million and total time spent increased 61.0% to 8.9 billion minutes. On a per-user basis, however, time spent increased at a higher rate of 30.0% year over year to 129.9 minutes and was just shy of Facebook 's 31.4% growth.
Lock-up of 454.3 million shares less than a month away
On May 7 almost two-thirds of Twitter's shares will be available to trade. Given that the shares are 65% above its $26 IPO price and have even greater gains for employees and investors at pre-IPO prices it wouldn't be surprising to see there be some selling to lock in gains (and throw even more fuel onto housing prices in San Francisco and the Bay Area).
The stock has not been trading long enough to learn much from a technical perspective. Probably the only relevant data point is its low of $39 which if breached could lead to further selling.
Source: StockCharts.com
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