Twitter Q2 Revenue Falls 19% But Daily Monetizable Users Jump to Record 186 Million; Target Price $43

Twitter Inc, an American microblogging and social networking service, reported that its total revenue fell 19% year-over-year to $683 million; however, the company’s monetizable daily active users rose 34% year over year to 186 million in the second quarter, sending its shares up over 6%.

The company’s total advertising revenue declined 23% to $562 million, largely due to widespread economic disruption and a significant decrease in global advertising spend as a result of the pandemic led to a 27% decline in advertising revenue in the last three weeks of March.

Total costs and expenses grew 5% year over year to $807 million, as we continue to balance targeted headcount growth with further reducing lower priority investments, resulting in an operating loss of $124 million, the company said.

Growth in Monetizable Daily Active Usage (mDAU) continued to accelerate, climbing to an all-time high of 186 million. The year-over-year surge in mDAU was primarily driven by external factors, such as continued shelter-in-place requirements for many people, and increased global conversation around the COVID-19 pandemic and other current events.

At the time of writing, Twitter Shares traded over 2% up at $39.99,  after rising over 6% during pre-market trading.

Twitter stock forecast

Twenty-six analysts forecast the average price in 12 months at $33.43 with a high forecast of $43.00 and a low forecast of $23.00. The average price target represents a -9.50% decrease from the last price of $36.94. From those 26, five analysts rated ‘Buy’, 19 rated ‘Hold’ and two rated ‘Sell’, according to Tipranks.

Morgan Stanley target price under a bull scenario is $43 and $24 under the worst-case scenario. We second Morgan Stanley on Twitter’s stock outlook. We also think it is good to buy at the current level and target at least $43 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“Lack of Negative Revisions and Relative Valuation: Valuation continues to be expensive, but we think investors are likely to continue to pay a premium for TWTR given 1) continued turnaround progress and 2) platform scarcity,” said Brian Nowak equity analyst at Morgan Stanley.

“Execution Risk Remains Around Driving Advertiser ROI: Advertiser ROI has clearly improved on Twitter, but the company needs to improve ad targeting and measurability to compete with the larger players. To do that it will have to further personalize the content that users see and use its data more effectively, both of which remain key strategic challenges (and priorities) for management.”

Upside and Downside risks

Less than expected Covid-19 impact. Evidence of stronger user growth/traction with Twitter’s personalization efforts. Ad unit innovation/other methods to improve the advertiser offering/ROI, Morgan Stanley highlighted as upside risks to Twitter.

Lower than anticipated DAU growth or time spent on Twitter could drive downside to MS’ ad revenue estimates. A prolonged recession could cause advertisers reduce lower ROI/experimental budgets, pressuring Ad Rev, Morgan Stanley highlighted as downside risks.