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Twitter is currently one of the worst performing stocks in the NASDAQ; it has fallen over 50% year-to-date, which was accentuated by the first quarter results that saw TWTR losing 28% since the release.
Whether you look at TWTR from a technical, quantitative or fundamental basis, it is hard to make a case that does not see it under pressure in the short term. The market sees this too, as the fall in the share price could be construed as a company that is a niche business and is unable to properly monetise its product, as advertisers question the penetration of ad dollar spent on the micro-blogging site.
With a consensus-blended forward P/E ratio of 422 times, and a falling month active user base, the market has every right to ask the same questions.
However, Nomura has upgraded its call on TWTR to a buy, which might explain the 10.7% jump in the share price overnight. The report believes TWTR now has a target price of US$43, implying a 27.5% upside from the closing price.
It sees five major reasons for upgrading the stock and sees TWR with a P/E ratio of 24 times its 2017 earnings per share expectations on these five points:
These are valid assumptions and the case for TWTR to reach these targets seems achievable, however it does not excuse the fact that ad dollars are currently indifferent to the market penetration on the site.
Yes optimisation upgrades are coming, but the lessons learnt from Facebook linger; major advertisers left the site in the beginning as it was not seen as beneficial to marketing planning, and it took a lot of hard work to get them to return.
The other part of TWTR that is unknown is longevity. Will its users move to more ‘now’ and targeted sites? If this is the case, will TWTR have to follow Facebook’s lead and buy its way to the users through acquisition? This is something it may not have the ability to do.
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