October 2, 2015, 1:05 P.M. ET
Twitter: Stand By for String of Positive News, Says Deutsche
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By Tiernan Ray
Shares of Twitter (TWTR) ar up $1.42, or almost 6%, at $26.10, after Deutsche Bank’s Ross Sandler today reiterated a Buy rating and a $50 price target, writing that “a string of positive news should start to materialize,” including the naming a permanent CEO and the roll out of “Project Lightning,” which should boost mainstream use of the service.
He’s bullish on the Q3 outlook: “We think revenue should slightly exceed consensus revenue of $559m, despite over-concerns and noise in the investment community, with consistent margin expansion (DB EBITDA of $113m).”
More important, the quarter’s report will bring some early data on Lightning’s progress: “The key to the story in the short term is whether “Moments” (i.e. Project Lightening) can attract and engage new users, and if Twitter can improve retention trends. The company should have 3 weeks of data by the time they report 3Q, hence we are cautiously optimistic.”
Overall, he thinks sentiment has just gotten too negative:
Similar to when Facebook in 2012 or Google in 1H15 went out of favor, we think the sentiment pendulum for Twitter has swung too far to the negative. The challenge the company needs to overcome in growing usage and engagement is a harder fix than what Facebook experienced in 2012, but we think manageable. We are confident that ad revenue growth will pick up in 1Q16 when third party attribution is fully rolled out to DR marketers and hence we have little concerns around monetization. In summary, we think Twitter is likely to make a comeback at some point, which is a very non-consensus view.
Last but not least, “Lastly, the CEO seat will likely be filled in the near-to-medium term along with a BoD re-shuffle, which should help sentiment.”
Sandler’s note is not unlike a late August note from Robert Peck of SunTrust Robinson Humphrey, who wrote about a looming “series of catalysts.’
