Amid a booming quarter for many others in the digital-advertising industry, Twitter Inc.’s “relatively average” results aren’t cutting it for investors.
The social-media company sported a sequential slowdown in U.S. advertising revenue and issued a below-consensus revenue forecast at the midpoint. The numbers highlighted how Twitter’s TWTR,
Twitter shares are off more than 12% in morning trading Friday.
MoffettNathanson analyst Michael Nathanson called out the company’s 22% growth in U.S. advertising revenue relative to the prior March quarter, in which revenue grew only 5% due to early impacts from the pandemic. Given that easier comparison, Nathanson was surprised that U.S. advertising revenue decelerated from the 27% growth seen in the December quarter, which faced a harder comparison of 20% growth in the year-prior quarter.
“On top of that, Twitter’s explanation that brand advertisers started the year slowly and that key events were pushed into the second quarter makes little sense given the strong channel checks in national TV scatter (where brands spend) and the fact that March 2021 obviously had many more live events than March 2020,” Nathanson continued.
In addition, he has concerns about Twitter’s outlook, which calls for 5% sequential revenue growth at the high end of the company’s range.
Such an increase would be “lower than the recent pattern of 1Q to 2Q sequential revenue growth, Nathanson wrote. “We find it very odd that there isn’t more acceleration this year than years past given both the noted slow start of brand in 1Q and the key event shifts into 2Q.”
He titled his note “The Math Doesn’t Make Sense?” and reiterated a neutral rating on Twitter’s stock, while lowering his price target to $57 from $65.
Wedbush analyst Ygal Arounian highlighted that Twitter’s results seemed underwhelming in the wake of stronger reports from peers.
“Twitter’s digital advertising peers all saw significant beats on revenue with guidance ahead of 2Q expectations, meaning Twitter, so far, has participated somewhat less in the digital advertising market rebound,” he wrote.
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The company’s management team also called for low-double-digit growth in monetizable daily active users in the remaining three quarters of the year, which Arounian noted was below the 20% longer-term growth target that the company established at its recent analyst day.
“While management reiterated its 2023 target of 315 million, slower growth in 2021 raises the bar for a bigger step up in 2022-23 in order to meet those targets,” he argued, while maintaining a neutral rating on the stock reducing his price target to $64 from $75.
Evercore ISI’s Mark Mahaney also keyed in on Twitter’s results and prospects relative to the broader ecosystem.
“Twitter’s Q1 results were a reminder of how, unlike most of the other [internet] advertisers, this platform relies heavily on spend from large and mid-sized advertisers,” Mahaney wrote in a note to clients.
He thinks that Twitter is right to be investing in a buildout of its direct-response offering but argued the company’s challenge is that “the value proposition to advertisers doesn’t appear as compelling today when compared to GOOGL GOOG,
He has an in-line rating on Twitter’s stock and lowered his price target to $67 from $75.
Bernstein analyst Mark Shmulik acknowledged that Twitter’s results weren’t as flashy as those seen elsewhere in the ad universe, but he urged investors to be patient.
“OK revenues, OK engagement, OK guide apparently aren’t OK enough when the rest of the sector delivered big revenue beats and guidance raises,” wrote Bernstein analyst Mark Shmulik, who called Twitter’s latest numbers “relatively average” in that context.
Still, Shmulik is encouraged by the road map that Twitter outlined at its February analyst day and advised that investors give Twitter “a minute, or another quarter or two” to show progress on those goals.
“Analyst Day offered a road map to a larger, more monetizable Twitter,” Shmulik wrote. “A push into video with a full slate of events should offer top-line growth. Spaces continues to scale up with weekly feature shipments. And a full talent pipeline is encouraging for the longer term.”
Shmulik has a market-perform rating on Twitter’s stock and cut his price target to $70 from $80 in a note titled: “When it’s not OK to be OK?”
At least 21 analysts reduced their price targets on Twitter shares after the report, according to FactSet. Of the 41 analysts tracked by FactSet who cover Twitter’s stock, 10 have buy ratings, 26 have hold ratings, and five have sell ratings, with an average price target of $66.74.