Pac Crest and Topeka have downgraded Twitter (NYSE:TWTR) to neutral ratings after the company offered light Q1 sales guidance and reported flat Q/Q MAU growth to go with a Q4 EPS beat, and a long list of other firms have cut their targets. Shares have once more made new post-IPO lows.
Pac Crest Evan Wilson calls the Q4 report the "end of the hope trade" related to Jack Dorsey's return, and is skeptical the five-point plan unveiled in Twitter's shareholder letter (.pdf) - it includes fixing confusing elements of Twitter's UI, increasing live video integration, connecting more with influential people/groups, and growing developer ties - will bring in new or lapsed users.
Topeka's Blake Harper: "Our upgrade to a Buy rating in October was based on the thesis that product upgrades led by the new CEO could accelerate user growth and monetization but it appears it will take more time ... By focusing on live content the company is sticking to its core, which should please its power users but the ability to appeal to a broader audience is still undetermined."
Oppenheimer also has its doubts: "Given current trends and competition for users, we have limited confidence in the platform's ability to re-accelerate MAUs over the next 12–18 months, pending a better understanding on planned product changes or actual monetization of logged-off users ... In our opinion, MAUs continue to decelerate as product updates are still in their infancy and competition is increasing around media aggregation,"
SunTrust's Bob Peck (Buy) is a little more upbeat. "We think management articulated a cogent vision for the company that makes us cautiously optimistic. However, if the plan does not materialize in user growth we think there are 3 scenarios that help provide investor support: 1) Costs cuts to align with reduced growth trajectory; 2) ARPU growth alone can support near term expectations; 3) M&A math supports higher valuations."
Monness Crespi's James Cakmak (Buy) observes Q4 ad data was healthy. Advertiser count rose by 16% Q/Q; ad engagements rose 153%, offsetting a 41% ad price drop (partly due to auto-play video ads), and progress was made in delivering better ad measurement tools to advertisers.
Unlike Harper, Cakmak thinks emphasizing Twitter's live/real-time nature is a good thing. "If Twitter can reduce on-boarding friction, lower hurdles in how to engage, and get the appropriate messaging around the service, it’s worth giving the benefit of the doubt still, in our view."