If you cannot view this page properly a web version is available here
|The Equities Research Specialist|
|Twitter - TWTR US|
|Too Far, Too Fast; Downgrade to Underperform|
The Bottom Line – We expect this to be among the shortest downgrade note you’ve ever read, as nothing fundamentally has changed since our Neutral initiation on Dec. 11, except that shares have risen 40%. When we launched on TWTR 15 days ago, we laid out pros and cons and stated that TWTR was worth $46/share. Since that time, on the back of virtually no new news, the stock has risen in value 40% (vs. 2% for the S&P 500). Since the IPO open on 11/7, TWTR shares are up 62% (vs. a 4% gain for the S&P 500). We continue to believe that Twitter as a company has a bright future and many opportunities ahead. However, as a stock, we believe nothing has changed over the last 15 days to justify the rise in valuation. Therefore, we are reducing our rating to Underperform, from Neutral, and maintaining our estimates and $46 target price. In addition to our initiation comments we highlight the following key points:
1) Estimate differences between underwriters and others could limit upside to consensus. By far, the point from our initiation that received the most attention is the table noting the wide difference in underwriters and non-underwriters’ rev. estimates (15% lower in ’14, ~30% in ’15). Because the high-profile TWTR had a relatively small amount of underwriters, it led to a unique situation of more than a dozen banks launching coverage without receiving guidance or speaking in any real detail w/mgmt. Below-the-line items such as taxes and share count also have wide discrepancies.
2) Many opportunities, but will take time and additional headcount: While we are quite bullish on TWTR’s potential, we highlight that it takes time and people to execute against opportunities. TWTR has less than half the number of employees as FB and just 5% of GOOG’s (even excluding MOT).
3) Other downgrades to come? Finally, we note that because of TWTR’s run and rules around price targets, we expect many other analysts will quickly have to either justify raising targets (based on little new information) or downgrade.
27 December 2013
Disclaimer: The information
contained in this e-mail is confidential and has been furnished to you
solely for your use. You may not disclose, reproduce or distribute the
information in any way. Macquarie does not guarantee the integrity of this
e-mail or attached files.