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Can Twitter Stock Keep Going After Last Week's 21% Pop?

By Rick Munarriz - Oct 29, 2017 at 12:15PM

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The social media giant hit a new 52-week high after posting well-received quarterly results.

Shares of Twitter (TWTR -1.10%) hit 52-week highs on Friday, despite posting another quarterly deficit on a reported basis and year-over-year decline in revenue. However, the social media giant's continuing improvement in daily active users and cost controls has investors raving about the third-quarter report. Twitter stock was one of the market's biggest winners, up 21.3% on the week. 

Revenue declined 4% to $589.6 million, Twitter's third straight quarter of negative top-line growth. However, improving margin helped narrow Twitter's loss substantially. Engagement is also on the rise, with daily active users up 14% over the past year. This is the fourth consecutive quarter of double-digit growth for daily active users. Twitter isn't perfect, but it's showing enough signs of life to give bulls the upper hand. 

Twitter's blog share graphic with its signature bird across various devices.

Image source: Twitter.  

Tweet dreams 

Twitter stock was born to move on fresh financials. This isn't the first time that the stock made a big move during earnings season. The stock plunged 17% the week it posted second-quarter results this summer. Three months earlier, Twitter shares had soared 13% -- in back-to-back weeks -- after the company announced first-quarter financials, and that followed a 12% slide the week it offered up its fourth-quarter metrics. You have to go all the way back to last year to find a time when Twitter stock didn't experience a double-digit percentage move the week it posted quarterly numbers.

Monetization remains a challenge, but several lukewarm or bearish analysts are easing up on the pessimism. SunTrust analyst Youssef Squali is lifting his price target from $16 to $18. Colin Sebastian at Baird and Shyam Patil at Susquehanna are bumping their price goals from $17 to $20. All three analysts are sticking to their neutral ratings on the stock, but moving up with the stock instead of lowering their ratings based on valuation is a win for Twitter.

Two reformed bears upgraded the stock from sell to neutral ratings. Eric Sheridan at UBS is encouraged by the perpetual improvement in engagement metrics; he also feels that the stock isn't as risky as it was before. His price target is going from $14 to $21. Scott Devitt's upgrade at Sifel singles out increased spending by Twitter's largest ad buyers as a reason for him to boost his adjusted earnings before interest, tax, depreciation, and amortization for 2018 and 2019. His price target is rising from $12 to $17, but he does note that significant challenges remain on the bumpy path to sustainable revenue growth. 

It's only fair to point out that the stock closed out the week ahead of all five of those upwardly revised price targets. There's a reason why all five of those analysts are merely neutral on the stock. However, the trend continues to be Twitter's friend. Investor interest -- like Twitter's restrictive character count -- is on the rise. 

Rick Munarriz owns shares of Twitter. The Motley Fool owns shares of and recommends Twitter. The Motley Fool has a disclosure policy.

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