I'm also boosting my forecast for Twitter's revenue, cash flow and earnings per share, in part because Twitter has consistently beaten analyst estimates on all metrics since the third quarter ended. And the company suggested in releasing earnings Wednesday that there's further upside for the current quarter.
Now, Twitter saw big volatility on Wednesday after its earnings report came out -- rallying above $34 at one point, falling back to about $28 later and ultimately closing near $30 (where it's also trading at on Friday). I sold my position at around $33.50 in premarket trading Wednesday, but later bought it back on weakness at around $29.25. I also bought more shares on Friday at around $29.
The stock moved around on Wednesday because management advised that a modestly more cautious outlook lies ahead for 2018's second half as a whole. But to me, management's outlook wasn't any different from what the company expressed in its previous earnings call, so nothing has really changed.
In fact, I believe that Twitter is providing very conservative guidance that it will likely beat in the third and fourth quarters given good momentum in non-U.S. sales and usage. And as a reminder, I put Twitter on my "Best Long Ideas" list at just $15.75 a share in March 2017.
My other takeaways from Twitter's earnings report:
- The company's value to advertisers is improving thanks to stronger product offerings, double-digit daily average user growth and better advertising engagement in terms of pricing and penetration.
- More and better monetization opportunities lie ahead.
- Twitter's platform has more "scarcity value" than ever.
The Bottom Line
Add it all up and I'm raising my estimates for Twitter as follows:
- Revenue Growth. +5% for 2018 and +11% for 2019.
- Cash-Flow Growth. +7% for 2018 and +11% for 2019.
- Earnings Per Share. I'm raising my 2018 estimate to $0.65, up from my previous projection of $0.52. I'm also boosting my 2019 EPS forecast to $0.80 against my earlier $0.63.
- 12-month Price Target. As noted above, I'm raising my price target on Twitter to $40 a share vs. the stock's current $30 or so. I arrived at the $40 figure by multiplying estimated 2019 EBITDA by 18x. That margin represents a premium to other social-media companies, but seems justified given Twitter's scarcity value and improving sales, cash flow, profits and the other factors listed above.