Cutting Our Fair Value on Twitter
While the firm's growing user engagement is reaffirming part of our thesis, lower than expected user growth and delay in more effective monetization of the users are concerning.
Narrow-moat Twitter (TWTR) reported disappointing fourth-quarter 2016 results, with total revenue and operating income below our expectations. While the firm's growing user engagement is reaffirming part of our thesis, lower-than-expected user growth and delay in more effective monetization of the users are concerning.
Management did not provide full-year 2017 revenue guidance, but the first-quarter adjusted EBITDA guidance and implied revenue range were well below our forecast. Although we have lowered our 2017 and 2018 revenue projections by 18% and 23%, respectively, we continue to believe that with more user engagement, of which we are seeing some indications, Twitter can attract more ad dollars and generate double-digit top-line growth again in 2018.
We plan to lower our fair value estimate to $18 per share from $20 after slashing our projections, the impact of which was offset partially by the time value of money. While Twitter shares are down close to 13% in reaction to the disappointing quarterly results, at a 10% discount to our new fair value, the stock remains in 3-star territory due to its very high uncertainty rating.
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Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.