Analyst: Twitter Has Upside, But Expect Volatility
Shares of Twitter (NYSE:TWTR) rose with the tide on Monday afternoon after analysts at Goldman Sachs raised their price target on the stock from $46 (19.3 percent below Friday’s closing price) to $65 (14 percent above). This compares against a mean analyst price target of $44.84 and a median analyst price target of $46.
In a note seen by StreetInsider, Goldman analyst Terry Heath suggested that a “significant acceleration in the pace of Twitter’s product innovation” is “indicative of the company’s ongoing capabilities now that site stability issues have been resolved.” This acceleration, and the capabilities it represents, means more rapid and effective monetization for the social media company. Along with the price target increase, Heath upwardly revised his earnings targets for fiscal years 2013 through 2015.
Fiscal 2013 earnings are expected at a loss of $3.35 per share, up from a loss of $3.37 per share; fiscal 2014 earnings are expected at a loss of 70 cents per share, up from a loss of 71 cents per share; and fiscal 2015 earnings are expected at a loss of 69 per share, up from a loss of 72 cents per share.
For what it’s worth, Heath did indicate that because of its enormous valuation and sensitivity to sentiment, Twitter stock could be volatile for a while. With a trailing price-to-sales ratio of more than 58 and negative earnings, this seems obvious. Shares have traded in a relatively enormous range between $38.80 and $60.38 since closing at $44.90 on opening day, up more than 72 percent from the initial public offering price of $26 per share. The stock is currently up about 27 percent since the close of opening day.
While Goldman remains optimistic despite the expected volatility, other analysts are simply bearish. Cantor Fitzgerald analyst Youssef Squali hit Twitter with a downgrade last week, giving the stock a rare Sell rating. “While historically we’ve reserved our ‘SELL’ rating to business models with structural challenges, we find TWTR’s valuation to be excessive and currently see materially more downside than upside,” he wrote.
Before that, analysts at at Morgan Stanley and CRT Capital stepped off the bandwagon, downwardly revising their expectations largely based on valuation concerns.