Product Bugs Hinder Twitter's Q3 Growth
We recommend waiting for an additional margin of safety before investing in this very-high-uncertainty name.
Twitter’s (TWTR) impressive user growth during the third quarter was accompanied by a decline in user monetization as the firm’s unexpected technology issues with targeted ads, return on investment measurements, and access to user data pushed away some ad dollars. While the technology bugs may be fixed quickly, it may take longer for some advertisers and agencies to regain confidence in the platform, which may further affect revenue growth. In our view, this is another example of various difficulties the firm faces as it attempts to develop a two-sided network effect moat source and compete more effectively with online advertising and social network behemoth Facebook. We have not made significant changes to next year’s projections as two events in 2020--the Summer Olympics and the U.S. presidential election--are likely to accelerate growth.
We are maintaining our $32 fair value estimate. The stock was down 21% during the Oct. 24 trading day in reaction to the disappointing third-quarter results, and it's down more than 32% from its 52-week high of early September. While the stock is no longer overvalued after today’s pullback, it is trading at only a slight discount to our fair value estimate. For this reason, we continue to recommend waiting for additional margin of safety before investing in this very-high-uncertainty name.
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Ali Mogharabi does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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