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Citi: Twitter Showed No Meaningful Signs Of Improvement

Citi: Twitter Showed No Meaningful Signs Of Improvement - Twitter NYSE:TWTR

While Twitter Inc TWTR reported its 2Q16 revenue roughly in line with the estimate, with the EPS beating the estimate, the 3Q guidance was meaningfully below expectations.

Citi’s Mark May maintains a Neutral rating on the company, with a price target of $16.

Disappointing Guidance

“User growth showed no meaningful signs of improvement, and the company’s most important revenue segments (O&O ad revenue and U.S. ad revenue) showed significant deceleration,” May mentioned, adding the U.S. ad revenue decline sequentially for the first time during a 2Q.

The analyst noted that management’s 3Q guidance and comments regarding segment level trends imply that the recent challenges were expected to continue in the near term.

May also stated the that the revenue issues being faced by Twitter appeared to be company specific, rather than being a reflection of the macro and ad market.

Limited Visibility And Upside

“Mgmt remains optimistic that consumer and advertiser product initiatives recently launched or in the pipeline will improve user growth, user engagement, and monetization, though the timing and impact remains uncertain in our view,” the analyst said.

Although May expects the stock valuation to have more support at the current levels, given the company’s positive free cash flow and strategic value, limited upside is likely till user and engagement trends start to improve.

At time of writing, Twitter was down 10.89 percent in Wednesday's pre-market session, trading at $16.44.

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Jul 2016Morgan StanleyMaintainsUnderweight
Jul 2016Goldman SachsMaintainsBuy
Jul 2016CitigroupMaintainsNeutral

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