Evercore lowers its earnings outlook for Twitter on executive departures, hacking risk

Published Thu, Jan 5 201712:48 PM EST

Evercore ISI on Thursday lowered its fourth-quarter and full-year earnings estimates for Twitter , predicting a drop in revenue due to lower advertising sales, which could put a ceiling on the social media stock in 2017. Ahead of Twitter's earnings report in early February, the investment bank lowered its quarterly revenue estimate by 2 percent to $738 million, implying a 4 percent drop from the same period a year ago. Similarly, adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) for the quarter was lowered by 3 percent to $170 million, implying a decrease of 11 percent from a year ago. Evercore also predicts earnings figures in 2017 will be lower than expected. "The 2017 reductions stem not only from softer ad check and traffic trends but also from executional worries given Twitter's ongoing restructuring against the backdrop of continued executive departures and hacking incidents," equity analyst Ken Sena wrote in a research note. Revenue estimates for 2017 were lowered by 2 percent to $2.7 billion, implying a decrease of 7 percent from 2016, while adjusted EBITDA was decreased by 1 percent to $799 million, implying a drop of 13 percent from 2016 levels. The bearishness by the investment bank stems from "waning advertiser interest in Twitter's ad products," an ongoing trend the firm believes will prevail in 2017. Recent issues with the way ad campaigns are tracked by Twitter are also a source of concern, Evercore says. "Where revenues are concerned, the recent revelation that Twitter has had to refund advertisers for mismeasurement of certain video campaigns ( Twitter's Statement ) on Android devices may only further complicate matters," Sena wrote in his note. In terms of user engagement, Twitter continues to lag behind other social platforms such as Instagram and Snapchat, the analyst said. "Although Twitter's total time spent and time spent per user were already lower than Snapchat's and Instagram's, the most recent November data from comScore shows a return to y/y [year over year] declines exhibited in 1H16 [first half of 2016] with a decline of 15% y/y in total time spent and 10% y/y in time per user," Sena wrote. Source: comScore, Evercore ISI Research Apart from a decline in engagement, Twitter hasn't been able to attract new users, another source of worry for investors, especially as firms like Snapchat show strong growth, according to Evercore. "Further, two rounds of restructuring over the last year against a backdrop of continued executive attrition, coupled with recent hacking incidents such as the hacking of Sony's, Netflix's, and Viacom's accounts, add further top line concern," Sena said. Given the headwinds facing Twitter, Evercore recommends a hold rating on the stock with a 12-month price target of $17, which is essentially where the stock currently trades.

Twitter

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Ahead of Twitter's earnings report in early February, the investment bank lowered its quarterly revenue estimate by 2 percent to $738 million, implying a 4 percent drop from the same period a year ago. Similarly, adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) for the quarter was lowered by 3 percent to $170 million, implying a decrease of 11 percent from a year ago.

Evercore also predicts earnings figures in 2017 will be lower than expected.

"The 2017 reductions stem not only from softer ad check and traffic trends but also from executional worries given Twitter's ongoing restructuring against the backdrop of continued executive departures and hacking incidents," equity analyst Ken Sena wrote in a research note.