Twitter, Inc. Initial Review BUY

TWTR : NASDAQ
US$52.91 BUY 
Target: 62.00

COMPANY DESCRIPTION:
Twitter is the world’s leading real-time one-to-many
communication platform for discovering and sharing unique
content. With over 270 million global monthly users, Twitter has a
diverse user base including influential individuals such as world
leaders, celebrities, athletes, and leading organizations such as
sports teams, media outlets, and brands. Each Tweet is limited to
140 characters of text, and can conclude photos, videos, and
applications.

Technology — Internet
ENGAGEMENT & MONETIZATION TRUMP USER GROWTH; INITIATING AT BUY
Investment recommendation
We believe Twitter is early in defining what is possible as the world’s
real-time interest sharing platform. The evolution will likely be bumpy,
but the platform should continue to become more mainstream. Slowing
user growth is a challenge, but we believe the company has levers to
pull to fight back. Meanwhile, our positive stance is based largely on the
engagement and monetization momentum we expect over the next few
quarters. We believe this should lead to upward estimate revisions as
Twitter benefits from engagement and monetization groundwork that
has been laid over the past year.
Investment highlights
 Users & engagement may be mixed – MAU growth may not
accelerate, but logged-out users could tilt the discussion favorably;
engagement metrics should rebound in Q3 & Q4.
 However, monetization holds significant upside – Twitter monetizes
at less than half the level of Facebook, but newer ad products
should help it catch up fast.
Valuation
Our $62 price target is based on 45x our 2018 EPS estimate, discounted
to present at a rate of 10%. We note that our estimates do not include
potential dilution from yesterday’s announced convertible debt offering.
On a growth-adjusted EV / Revs basis, TWTR trades at a significant
discount to peers.
Risks
User growth may disappoint, especially in the U.S. where monetization
is highest; platform shift to voyeurs (away from Tweeters) may impact
advertiser interest; new ad products may fail to gain momentum.

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