Wall Street Warms Up to Twitter Again
The bullishness has been contagious. MKM Partners issued an encouraging note this week, sticking to its earlier buy rating and a price target of $64.
A World of Opportunity
Graham feels that improvements in engagement and monetization will push the stock higher. He's particularly pumped about Twitter's potential overseas, where it's barely cashing in on its growing traffic. Twitter generated $3.05 in ad revenue per monthly active user in the U.S. during its latest quarter, but the average international monthly active user only took in 45 cents of marketing missives during the same quarter.
Sheridan is encouraged by the e-commerce potential of the "buy" buttons that Twitter is testing; companies can pay to have the graphical buttons to encourage clicks and purchases. Both Graham and Sheridan like Twitter's global push to make it easier for individual users and small companies to set up ads, something that Twitter likely picked up from Facebook (FB).
MKM Partners is upbeat on Twitter after conducting another round of surveys to weigh Twitter usage. It found that Twitter users aren't just teens and celebrities. Its survey of 1,800 Twitter users found that 70 percent of its users are between the ages of 25 and 44, a juicy age group for marketers. Just a little more than a quarter make more than $75,000 a year, but 64 percent of the audience is making at least $35,000 in income.
In short, Twitter may have more to offer marketers than we're seeing at the moment.
The Agony of the Tweet
Twitter has only been trading for 10 months, but they have been eventful. The November initial public offering was only priced at $26, but by the end of December the stock was fetching more than $63.
Things then cooled off dramatically in 2014. Investors began to fret about slowing usage growth and the challenges of monetization. Facebook's stickiness and mutual engagement lends itself to targeted spots, but that's a harder sell on Twitter, with its largely one-way broadcasts and 140-character limit.
By the time that the shares bottomed out in May below $30, the stock had gone on to shed more than half of its value in 2014. It has proceeded to make back most of that ground, but it's still trading lower for the year.
Twitter seems to be doing all of the right things. It's now profitable, and that wasn't the case last year. Analysts see revenue more than doubling to $1.36 billion this year, and most of that is coming from its improving monetization efforts. Wall Street then sees revenue growing 67 percent to $2.27 billion next year.
Things could get even better if it's able to make some smart acquisitions along the way. Twitter is raising $1.8 billion in a debt offering this month, adding to the $1.8 billion it received in IPO proceeds late last year. Twitter hasn't been as prolific as the larger Facebook on the buyout front, but it wouldn't be a surprise if it begins to dig deep into its growing greenbacks to make a deal or two in the coming months.
Twitter's starting to move, and with three analysts setting their sights on price targets of $62 to $65, Wall Street seems to think that this is only the beginning.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.