Twitter Inc (TWTR) stock plunged more than 13% in the wake of its third-quarter earnings report yesterday. To add insult to injury, a flurry of analysts downgraded the social media shares, adding to the selling pressure.
What Was So Awful About Twitter’s Q3?
So if TWTR stock is selling off and analysts are panning the stock in droves, one would think Twitter’s third-quarter results were miserable. Not so, as a matter of fact — they were merely “in line.” Wall Street had pretty gaudy expectations for the San Francisco company. InvestorPlace‘s Tom Taulli expounds on the company’s results:
“Revenues more than doubled to $361 million, with mobile ads accounting for about 85% of the total. Twitter also saw lots of strength in foreign markets, with revenues up 176% to $121 million.”
TWTR also met expectations by earning a penny per share in the period, and although revenue growth was explosive, it came in a mere $10 million above Wall Street’s consensus estimates. Taulli goes on to explain that Twitter’s guidance was just OK:
“Moreover, guidance wasn’t any better, merely landing in range with expectations. Q4 revenues are forecast to hit a range of $440 million to $450 million, with analysts expecting revs of $448 million, so on the high end.”
With Twitter impressing no one on Wall Street, the analysts had a field day bashing TWTR stock.
Analysts Sing a Sad Tune
Bank of America Merrill Lynch, RBC Capital Research, Nomura, and BernsteinResearch are big-name Wall Street research firms, and they all seem to agree when it comes to TWTR stock: You can do better. Each of those four outfits either downgraded or maintained their ratings and price targets on Twitter, and all four have either “market perform” or “neutral” ratings on the stock with an average price target of $47.25.
So what do analysts see in Twitter’s in-line earnings that’s so ominous? BernsteinResearch’s Carlos Kirjner and Peter Paskhaver get to the bottom of the issue succinctly. (MAUs are “monthly active users” and ARPU means “average revenue per user.”)
“We saw sequential deceleration of both domestic and international MAUs. We believe that to see upside in the stock, long-term investors need to believe first and foremost on a reacceleration of user growth or on a very aggressive monetization and ARPU trajectory.”
Monthly active users are a serious issue for Kirjner and Pskhaver, who note that “we saw MAU YoY (year-over-year) growth decelerate both domestically and internationally.” In addition, they think Twitter’s guidance “suggests a potential deceleration of MAU growth.”
Remember, though, this is only seen through the lens of one quarter. TWTR stock isn’t my favorite in the stock market universe, but its hard to argue with sales growth of more than 100%. I’ll be staying tuned on Twitter but won’t be snapping up any shares on the pullback.
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As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid.