Key points:
- Twitter downgraded to $42 from $70 at Wells Fargo following mixed Q4 earnings
- Analyst Brian Fitzgerald points to overly-ambitious growth in user projections
- Similar downgrades occurred from Wedbush and BMO Capital
Following earnings from Facebook, Snap, Pinterest, and Twitter; it’s been a wild few weeks for social media investors. Facebook in particular was hit hard as bears meticulously pulled the stock apart on slowing user growth and advertising headwinds. Twitter (NYSE: TWTR) faced similar scrutiny with its Q4 results that illuminated slowing usage, leaving investors questioning the future of company revenue.
Various analysts also updated coverage following the results, with Wells Fargo downgrading the stock today. Analyst Brian Fitzgerald lowered the firm's price target on Twitter to $42 from $70 and maintained an Equal Weight rating. Although Twitter posted relatively in-line Q4 results, usage underperformed the wider consensus, with not a lot of reassurance provided in mixed guidance.
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Fitzgerald’s key factor in the downgrade is the ambitious nature of management’s fiscal 2023 outlook. The company remains committed to revenue of $7.5B+ and mDAU of 315M+ in Q4 2023 – which would mean sizeable growth of 12M on average quarterly, versus 5M over the past six quarters.
This doesn’t seem likely, and it isn’t just Wells Fargo that is lowering price targets. Last week, Wedbush analyst Ygal Arounian lowered the firm's target on Twitter to $42 from $46, holding a Neutral rating. The downgrade revolved around the company’s mixed report and preliminary FY22 revenue growth with the midpoint 120bps below consensus. Arounian clarifies that Twitter shares are currently “properly valued”. On a similar target, BMO Capital analyst Daniel Salmon lowered Twitter to $40 from $65 – maintaining a Market Perform rating following the Q4 miss.
TWTR stock currently trades at a daily gain of 2.7%. If Twitter can leverage forthcoming products and reassure investors that revenue can remain stable despite a slowing user base, then TWTR stock may remain a solid pick. However, the company has a lot of hurdles to climb in the short term, and it might not be an easy road for Twitter and its investors.
