Twitter is Tech’s Biggest Loser
A halt in user growth is stealing the spotlight from Twitter’s strong ad revenue growth in the third quarter. The stock plunged nearly 20% following the report, with the damage potentially being exacerbated by the fact that Twitter is being outplayed by peers such as Snap and Pinterest.
Revenue vs. Audience: Twitter delivered a 20% revenue beat, but all attention is on Twitter’s 1 million net adds on mDAUs, which was 8 million shy of the consensus. It was the worst quarter-over-quarter growth since Q4'17. Twitter’s pandemic-fueled growth was clearly pulled forward into Q1 and Q2, which saw net adds 14 million and 20 million, respectively.
“Given the uncertain macro environment, the limited audience growth we saw in Q3, past execution missteps, and continued under monetization relative to peers, we remain on the sidelines, and reiterate our NEUTRAL rating on shares of Twitter,” said Wedbush analyst Michael Pachter.
Exaggerated reaction? Some Wall Street analysts are coming to the defense of Twitter and are declaring the dip a buying opportunity. Pivotal’s Michael Levine says the selloff is overdone and that Twitter is being unfairly compared to Snap and Pinterest.
“Given the run the stock had on the backdrop of SNAP/PINS results, you needed a perfect 10 of 10, and there were a few things investors are poking at, but we think the severe pullback after market is unwarranted,” said Pivotal analyst Michael Levine.
“We would take advantage of the pullback in TWTR to add to positions. We raise our target to $55 from $46 and maintain our Outperform rating,” said Oppenheimer analyst Jason Helfstein.
The Trump effect: How important is a Trump presidency to engagement and growth on Twitter? Whether due to correlation or causation, Twitter’s stock broke out of its slump in November 2016 and has more than doubled since Trump took office and decided to use the platform as a main source of communication. Levine says that if Trump loses the election, shorter duration funds will try to frame it as a negative for Twitter. He admits this could cause a near-term dip in stock price, but still sees long-term opportunity.
“This does not change our view that we think TWTR is in a different spot than when they entered the pandemic, and think they have cemented their position as a critical platform for news consumption.”
Big picture: Ad revenue was solid in Q3, but Twitter warned that the U.S. presidential election makes advertiser behavior “hard to predict.” Uncertainty and uninspiring user growth is leaving investors feeling more confident in alternative stocks in the digital advertising category. RBC analyst Mark Mahaney calls Twitter one of the “weaker recovery stories” in the space, and is waiting on the sidelines until he sees signs of better traction with small and medium-sized businesses and Direct Response advertisers.
