Twitter: A Bright New Year as Advertisers 'Re-engage,' Says JP Morgan
Shares of Twitter (TWTR) are up $1.84, or over 8%, at $24.07, after J.P. Morgan's Doug Anmuth this morning raised his rating on the shares to Overweight from Neutral, and raised his price target to $27 from $20, assigning it the designation of one of the firm's "Top small and mid-cap ideas in 2018."
Anmuth writes that the business story and the financial results will "strengthen over the next year" based on several factors, including a continued rise of 10% in " daily average users," with improvement in the product, and also an 8.6% rise in advertising revenue in 2018 as demand rises.
Things such as the user interface are among "more meaningful product changes" at Twitter over the past year and a half, writes Anmuth, changes "that have resulted in 4 straight quarters of double-digit DAU growth."
He's especially impressed with the companies forays into live content :
Twitter is increasingly focused on live video as part of its mission to be the place for real-time content. Twitter streamed 830 live events during 3Q, 74% of which went to a global audience. Importantly, all of the 16 live-streaming content partnerships announced at the Digital NewFronts in May will be funded and will launch, and Twitter also added 30 new partnerships during 3Q. As shown in Figure 1 below, video content is heavily focused across sports, news, and entertainment. We are optimistic on TicToc by Bloomberg, the 24/7 global news network that will launch on Twitter today, December 18.
The rising usage and better product set the stage for advertisers to "re-engage" in the new year, writes Anmuth:
We believe Twitter can grow both ad revenue and total revenue in 4Q17 excluding 4Q16 headwinds from TellApart, the NFL deal, and elections. With consistent double-digit DAU growth over the past year and improving content, we believe advertisers are re-engaging more with Twitter's platform. This is evident in increased momentum in upfront deals, as well as our industry discussions. Twitter's top 100 advertisers increased revenue 23% in 3Q17, but there is a lot of room for the rest of the base as CPE continues to decline, ROI picks up, and Twitter's ad products improve. We are raising our 4Q17 ad revenue estimate nearly $8M to $591M (-7.4% Y/Y) and increasing our 2018 ad revenue estimate by 3.4% to $2.234B (+8.6%), up from 5.5% growth previously […] We believe lower CPEs have helped enable Twitter to start signing upfront deals with large advertisers in 2017.
By Anmuth's math, if one separates out the impact of the company's acquisition of TellApart, and its deal with the NFL for streaming Thursday Night Football, this year, the actual Ad revenue decline for the full year of 7% was instead a rise of 1% in ad revenue.