Pivotal Research Group Upgrades Twitter (TWTR) to Buy
Kevin Perkins & Nikhil Gunderia
On Wednesday, Pivotal Research Group upgraded their Hold rating to Buy with a raised price target of $59.75 on Twitter (NYSE: TWTR). Twitter is expected to trend in the right direction as the company is receiving heavy brand exposure during the pandemic.
The number of monthly active users (MAUs), although the official number has not been disclosed, has risen significantly due to the COVID-19 lock downs and the 2020 Presidential Election in November. Analysts at Pivotal Research Group believe that since the pandemic began, Twitter has been able to translate an increase in MAUs to higher daily active users (DAUs). Similarly, it is important to note that Twitter has not targeted churned users to rejoin the platform, another reason for upgrading Twitter to a Buy rating.
Although it is known that the sale of Twitter Japan is highly unlikely, Pivotal Research Group sees that potential transaction as positive for Twitter’s future. Typically, as a “universal rule – at least in the pre-mobile world - if a company’s properties exist underneath the company’s domain there is absolutely no way to break out a unit for sale to another business.” However, years ago, Yahoo Japan was broken off from its parent company and has been thriving ever since. Twitter is in a similar situation to Yahoo and could consider selling off its Japanese company.
So far, Twitter has become “the stadium” for sports to compensate for the empty sports venues resulting in a spike in the company’s audience. Analysts were optimistic from the numbers and noted, “as we have thought through this dynamic more, and spoke to industry contacts, we don’t see how the lackluster linear sports ratings have been anything but a boom for online.”
However, it is important to acknowledge that while Twitter's audience has grown significantly this year the company’s disappointing performance as a direct response (DR) business has been a cause of concern. The return of sports hasn’t been the same contributing factor to Twitter’s advertising business as it has been before. Analysts believe that if Twitter implements better/more DR strategies, that could present a potential upside for the advertising community.
“We are not modeling it overtly, but based on an estimated 2021 revenue base of $4.3bn, we think an incremental 10-15% lift from successful DR initiatives at $400-600mm is entirely feasible. If they get things right, these are tiny numbers relative to larger peers like GOOG/FB who have much bigger DR ad businesses”, stated by the analyst.
While there are some downsides to investing in the online marketing strategy, the DR business for Twitter could propel the company forward to diminish the lag behind its main competitors. The current news cycle along with the return of live sports and events have proven to be the main drivers of increased user engagement which has led analysts to be bullish on Twitter despite the historical “hiccups” the company has shown.
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