Twitter’s [TWTR] share price jumped more than 10% in pre-market trading on Monday as news that co-founder and CEO Jack Dorsey was to step down emerged. No explanation was given for Dorsey’s departure other than a statement from the company that it was ‘ready to move on from its founders’. In Dorsey’s place at the top is chief technology officer Parag Agrawal as his successor.
According to the Financial Times, the succession has been planned for over a year as part of a deal with activist investor Elliott Management. The bone of contention had been Dorsey’s dual role as head of both Twitter and payment company Square [SQ], which Elliott Management argued was a distraction for Dorsey.
Twitter’s share price had seen plenty of unfollows this autumn. The stock is down 27% since 19 October (through 26 November) with so-so (though target-beating) Q3 earnings giving investors little to tweet about - or at least nothing worth tweeting about.
Now that there is something to tweet about, should investors pick up shares at this depressed valuation?
Why Twitter's share price got crushed in November
Trading on Twitter’s share price was eventually halted on Monday as the news of Dorsey’s exit filtered down. And despite Twitter’s recent share price hammering, the social media platform Agrawal now leads is in good health.
In the third quarter Twitter posted adjusted earnings of $0.18 a share, beating the expected $0.15. Revenue came in at $1.284bn, and while that was below the forecasted $1.285, it was up 37% compared to the same quarter last year. Promisingly, the bulk of that was made from ad revenue which increased 41% year-on-year and there was a 13% growth in daily active users - both encouraging numbers.
Off the back of those results, Twitter’s share price performance seems to be overdone. So what’s going on? The steep falls can be partly attributed to the social media company having to settle a class action in September for allegedly misleading investors about user growth and interactions with the platform. That cost Twitter $766m, and led to it reporting a $537m net loss in the third quarter, down from a $29m profit the same time last year. Diluted earnings came in at a $0.67 loss, well wide of expectations.
Valuation of a class action lawsuit Twitter settled in September
Twitter also provided details of the $1.05bn the sale of MoPub to AppLovin. MoPub provides monetisation solutions for mobile app publishers. Twitter doesn’t expect to recoup the full revenue loss of between $200m to $250m until next year.
In next quarter’s results investors will be looking at a clear strategy from Parag Agrawalon on how to grow subscriber numbers and ensure the social media platform remains relevant.
Analyst targets for Twitter's share price
Twitter’s share price may be under pressure, but even analysts’ trimmed forecasts suggest there’s still a decent upside in the stock. And with Dorsey heading for the exit their could be further upside to the stock with a dedicated CEO at the helm.
Morgan Stanley’s Brian Nowak tightened his price target from $68 to $62, while maintaining an Equal Weight rating on the stock. The analyst lowered his full year earnings and ad revenue forecasts for Twitter, but described the risk/reward for the stock as ‘somewhat compelling’. Nowak’s revised price target would see a 44.5% upside on Friday’s close of $47.04.
Morgan Stanley's Brian Nowak lowered his Twitter target from $68, but still sees 44.5% upside
BMO Capital’s Daniel Salmon lowered his price target from $70 to $65, citing lower profit estimates. Over at Wells Fargo, Brian Fitzgerald trimmed his target from $82 to $70 noting that while Twitter looks well protected from Apple iPhone privacy changes and supply strain problems, the social media platform’s Q4 guidance looks muted.
Webush’s Ygal Arounian revised the firm’s price target from $76 to $69, suggesting the third quarter numbers were solid but more proof is needed that subscriber numbers can continue to head higher. At Jefferies, analyst Brent Thill lowered his target from $80 to $70 saying investors should be pleased with earnings and guidance, but there are concerns over flat user numbers in the US.
One of the more bullish analysts is MKM Partners' Rohit Kulkarni who lowered his price target from $83 to $77, suggesting a hefty 63.6% upside on Friday’s close. Like other analysts, Kulkarni believes Twitter is insulated better than others from Apple’s changes.
Among the analysts tracking Twitter’s share price on Yahoo Finance, the stock carries a $69.11 price target - hitting this would see a 46.8% upside on the Friday’s close.
Jack Dorsey had had his place at Twitter reaffirmed by a board committee around this time last year, including representatives from Elliott Management, which put in place challenging performance targets. All eyes will now be on how Parag Agrawal performs in the role.
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