After Twitter's standout earnings report, Wall Street is ready to give it another chance
- After Twitter's standout earnings report Wednesday, analysts and investors are becoming more bullish on the company.
- Several analysts raised their ratings or price targets in the wake of Twitter's results.
- But the company still has to overcome skepticism that it can continue to deliver.
After years of serving as Wall Street's whipping boy, Twitter is finally starting to get a little love from investors and analysts.
Analysts are cheering the company's return to revenue and user growth after a period of stagnation and declines. And a growing number are optimistic there's more good news ahead.
"The bottom line is that (Twitter) has shown resilience," Macquarie Research analysts Benjamin Schachter, Ed Alter, and Angela Newell said in a research note Thursday. "We believe that the product has the potential to get much better [...] (and) expect momentum to continue."
The Macquarie analysts issued their report in the wake of Twitter's first-quarter earnings report Wednesday. The company's results beat analysts' revenue and earnings expectations. The standout results prompted Macquarie to raise its rating on Twitter to "outperform" from "neutral," and to increase its per share price target to $36 from $34.
"We believe that this is a story stock that can rise as long as business and usage trends continue to improve," the Macquarie analysts said.
But Macquarie was only one of several Wall Street firms that's taking a new look at Twitter. Following the company's earnings report, a clutch of other analysts either upgraded the company's stock, or raised their price targets on it.
UBS, for example, raised its rating from "neutral" to "buy" and upped its price target to $36 a share from $32. Twitter's latest results reflected what the firm had been hearing from advertisers it had polled - that they're returning to the site, because it's becoming more attractive to them.
"We feel more confident in Twitter's long-term ad revenue growth trajectory," UBS's Eric Sheridan and Alexandra Kasper said in their note Thursday.
Ad sales and usage are rebounding at Twitter
After several quarters of declines or slow growth, Twitter's ad sales - which provide the vast majority of the company's revenue - grew 21% in the first quarter from the same period a year earlier, the UBS analysts noted. Twitter looks like it can sustain that growth going forward by improving user engagement with its service, by better targeting ads to particular users, and through some of its newer ad formats catching on with advertisers, the analysts said.
Wedbush's Michael Pachter was a bit more skeptical on the company. The company's number of daily active users grew by 10%, marking the sixth consecutive quarter of double-digit growth. But that rate is slowing down and was the slowest it's been in nearly two years. And meanwhile, its number of monthly active users continues to grow at a much slower pace, Pachter noted, reiterating his "neutral rating" on the company.
But there's reason to be hopeful about the company, he said. Its results are improving, and it delivered a better-than-expected profit in the first quarter, Pachter said, pointing to that as a reason for raising his price target to $29 from $26 a share.
"We see great potential for Twitter to reinvigorate user and ad revenue growth," he said. "Twitter appears to be making progress, and we are prepared to revisit our investment thesis and price target if the company shows it can sustain user and revenue growth."
After selling off Twitter's stock on Wednesday, investors seemed to respond favorably to the analyst reports. In recent trading on Thursday, the company's stock was up 79 cents, or 2.7%, to $30.54.