Twitter Rises on Upgrade on Valuation Following 'Covid Sell-Off'

Twitter is known as a platform for big events and the lack of sports and movie releases has pressured the stock lower. But its shares have declined too far, says Bernstein.
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Twitter  (TWTR) - Get Report was upgraded to market perform from underperform by analysts at Bernstein, who argue that the recent pullback in the stock has gone too far. 

Twitter is down more than 20% over the past six weeks as Twitter's two primary revenue streams -- product launches and high-profile events -- have suffered greatly in the midst of the coronavirus pandemic. 

However, that pull back has been too steep, according to analyst Mark Shmulik. 

"The stock has underperformed in the COVID sell-off, and the valuation is now more reasonable at 5x EV/Sales. Fundamentally, a light flickers: (1) TWTR sits at the fulcrum of news and conversation during this unprecedented global event; (2) marquee (monetizable) events are just postponed, not lost; and (3) we are seeing signs of life from the impaired [mobile app promotion] product -- a necessity in a recession," Shmulik wrote. 

Bernstein is bullish on Twitter's ability to increase "the cadence of innovation" by delivering better ad products. The firm says that the current climate also offers Twitter cover to make operating structure changes for the better. 

There are still near-term risks to Twitter and Shmulik wrote he needs to see proof that users will continue to use the platform once the coronavirus pandemic is under control. 

"We are moving to the sidelines on TWTR. There's a lot to like but there's also plenty of reasons to remain skeptical. Here we are in the middle of an unprecedented global event, with TWTR sitting at the fulcrum of breaking news, opinions, and conversation," Shmulik wrote. "Yet, monetization challenges persist as ad budgets are getting cut significantly and brands don't want to be associated with COVID-related news."

Twitter shares were rising 2.69% to $26.28 on Wednesday morning.