Analyst Reduces Twitter's Earnings Estimate

Due, in part, to Twitter’s slimmed down ad offerings, at least one analyst is reducing his earnings estimate for the company.

“Our [earnings before interest, tax, depreciation and amortization] estimates for 2020 are 7% lower,” Pivotal Research analyst Michael Levine just revealed in a new client note.

“We believe the elimination of ad formats may have had a bigger impact than we had initially expected,” according to Levine.

As such, Levine has decided to lower the price target on Twitter’s stock from $49.75 to $47.00, although he is maintaining his Buy rating on the stock.

Next year, Levine also expects Twitter to increase its investment in major initiatives, including direct-response advertising.

In March, Twitter CFO Ned Segal told investors at a Morgan Stanley Technology Conference that direct-response was a particular area of focus for the company.

“We do have some direct-response advertising on Twitter, but not as much as we should,” he said at the time. “Most of the direct response that you see on Twitter is either brands like Video Website Card or Video App Card, where you may be buying [with] the objective to reach people watching the video, but you also may be buying [with] somebody clicking through.”

In his note, Levine also suggested that Twitter will have ample opportunities to grow its user base over the next year, which he said should interest investors.

“Given the likely implications to user growth from the Japan Olympics and the U.S. 2020 presidential election, we think investors are looking for reasons to own this for next year, and we are not getting off the bus,” Levine said.

Along with Levine, a number of analysts are skeptical over Twitter’s financial future.

“Twitter, after a resurgence across its domestic and international businesses last year, now has to live up to those stellar results,” MoffettNathanson analyst Michael Nathanson said in a July note to investors.

In July, Twitter reported better-than-expected second-quarter earnings. Year-over-year, total revenue rose 18% to $841 million, while ad revenue increased 21% to $727 million.

Among other factors, Twitter CEO Jack Dorsey attributed the company’s strong second-quarter to advances in machine learning, which he said were delivering more relevant content to users.

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