Bear of the Day: Twitter (TWTR)

I last wrote about Twitter TWTR as the Bear of the Day on November 1 when shares were trading near $55.
The theme after their Q3 report in late October was a wicked earnings deterioration where analysts reacted with a 58% clear-cutting of EPS estimates from $0.94 to $0.39, mostly based on the big profit miss for the quarter.
Since then, the downward revisions have kept coming with another 64% walloping to take this year’s consensus down to just $0.14.
More importantly for the forward outlook, next year’s EPS consensus has slipped 27% from $1.22 to $0.89.
By Thanksgiving, Twitter shares had slipped to $47. But insult to injury, on Monday the 29th, CEO Jack Dorsey announced he was stepping down and shares actually rallied briefly on the news to $52.
The insta-rally didn’t last but it was sort of reminiscent of when Steve Ballmer left Microsoft.
Analysts React Again
While few analysts would attribute (or admit if they did) their earnings forecasts to whether or not @Jack is behind the wheel, several did provided updates last week.
There were a few that did comment directly on the departure…
Jefferies analyst Brent Thill said he views Jack Dorsey’s resignation and the appointments of CTO Parag Agrawal as CEO and Bret Taylor as Chairman of the Board as positives for the stock and a “step in the right direction.”

While he believes the new leadership could reinvigorate growth and help deliver on management’s initial FY23 goals, he still sees “plenty of hurdles to clear” for Twitter to improve on its sluggish pace of ad product innovation and reverse its stock underperformance relative to peers. Thill has a Hold rating and $70 price target on Twitter shares.
Wedbush analyst Ygal Arounian lowered the firm’s price target on Twitter to $52 from $69 and kept a Neutral rating on the shares after the company announced that co-founder and CEO Jack Dorsey will resign effective immediately and will be replaced by CTO Parag Agrawal.

Dorsey’s contributions to Twitter are undeniable and as a founder and CEO he continued to play a critical role, so his stepping down is “no minor point” in the analyst’s view.
Citi analyst Jason Bazinet lowered his price target on Twitter to $47 from $60 and kept a Neutral rating on the shares. The analyst reduced Twitter’s target multiple to more closely align with the company’s peer group.

Bazinet believes the stock’s current valuation reflects much of the revenue and margin opportunity over the next few years.
Piper Sandler analyst Thomas Champion lowered his price target on Twitter to $54 from $70 on Thursday and reiterated a Neutral rating on the shares after conducting a survey of 1,500 people in the United States to better understand the company’s usage.

Overall, user growth in the U.S. may be hampered by churn while advertising relevancy turned out better than expected and subscriptions “look appealing to a narrow audience.”

The survey suggests Twitter’s user growth opportunity in the U.S. remains as 60% of respondents have not used the platform, says the analyst. However, he believes that with gross adds and churn evenly matched in the most recent period, the “setup for Twitter’s growth looks challenging.”
Also on Thursday, UBS analyst Lloyd Walmsley assumed coverage of Twitter with a Neutral rating and price target of $50, down from $69. The company’s 2023 targets look increasingly like “a stretch” and will serve as an overhang on shares the analyst noted, though he also “sees evidence” that Twitter is executing on new product development at a faster clip than historical levels.

Walmsley concluded that consensus estimates look ambitious, but risk-reward appears balanced on the stock.
Large Twitter Investors Speak Out
In my November 1 article, I noted how Cathie Wood’s ARK Invest firm was buying TWTR shares all the way down before and after earnings from as high as $63.
Well on Tuesday, ARK bought another 1.1 million shares of TWTR at an average price under $45. This was not really a surprise given their enthusiasm for the company. But they didn’t buy anymore the rest of the week on new 52-week lows under $42, which was curious to me.
But another big bull made his views known. Elliott Investment Management chief Paul Singer made it a point to let his lieutenants publicly announce that they are “confident” in the Twitter leadership. As a very successful activist investor, it’s possible he was behind the move all the time.
Elliott released the following statement on behalf of Managing Partner Jesse Cohn and Senior Portfolio Manager Marc Steinberg regarding the leadership changes announced at Twitter…
Twitter is the leading global medium for real-time conversation and engagement, and our collaboration with Jack and the company for the past two years has been productive and effective. Twitter is now executing against an ambitious multi-year plan to dramatically increase the company’s reach and value, and we look forward to the next chapter of Twitter’s story. Having gotten to know both incoming Chairman Bret Taylor and incoming CEO Parag Agrawal, we are confident that they are the right leaders for Twitter at this pivotal moment for the company.
My Bottom Line on TWTR
I love the platform and its diverse “communities of knowledge” that encourage learning, collaboration, and often career opportunities across business, investing, science, education, and medicine. It should have a “long tail” existence and be able to monetize many aspects for years to come.
With 37% topline growth this year to breach $5 billion and a projected 22% advance next year to cross $6.2 billion, the stock now trades attractively at under 6 times sales. As soon as EPS estimates stabilize and start heading back up, TWTR will be a buy again.
The Zacks Rank will let you know.

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