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Twitter Gets Third Bullish Vote of Confidence This Week

By Evan Niu, CFA - Updated Dec 20, 2017 at 5:01PM

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Argus boosts its price target on Twitter shares to $30.

Twitter (TWTR 2.25%) received not one but two votes of confidence from Wall Street on Monday. JPMorgan first upgraded Twitter shares from neutral to outperform, with analyst Doug Anmuth citing encouraging trends with engagement and daily active user (DAU) growth that could pave the way for ad revenue jumping 9% in 2018. Later that day, Summit Redstone initiated coverage with a buy rating and $26 price target, with analyst Jonathan Kees arguing that the "now is the time to jump in" based on those same engagement and DAU trends.

The microblogging service is getting its third bullish note this week, this time from Argus.

Woman walking by a black and white banner with the Twitter logo

Image source: Twitter. Image copyright Atsushi Nakamichi for Twitter, Inc.

Word on the Street

Argus had upgraded Twitter shares to buy just last month in part due to "strong growth in adjusted EBITDA." Now, analyst Jim Kelleher is raising his price target from $25 to $30. Twitter's strong third-quarter results included a record adjusted EBITDA margin of 35% as it exercised cost discipline, and the company guided to $220 million to $240 million in adjusted EBITDA in the fourth quarter.

Even though Twitter shares have trended higher since then, Kelleher believes that shares "have further to go as the company restores growth while enabling a civil but not censored forum for its users." Starting this week, Twitter is expanding and vowing to better enforce its policies around harassment and abuse, and has already begun suspending and banning hateful accounts, including some prominent neo-Nazis. Kelleher notes that Twitter has become "increasingly toxic" over the past couple of years, and he is optimistic that the renewed effort will be successful in "removing hateful and violence-inciting content" as it looks to "retain its role as a forum for public debate."

Ironically, the analyst argues that Twitter's text-centric platform is becoming a source of strength, whereas it could have been previously considered a weakness. Twitter supports different types of media content like photos/videos as well, but text-based tweets are still the core of the service. While other platforms continue to focus increasingly on photo/video content, within the context of deep political divisions across the world, users wish to "express strong feelings that require text explication." Kelleher adds, "a scowling selfie simply won't do."

Still, Twitter will have to walk the fine line between removing hateful content and censorship, a decidedly difficult task since the company has historically employed a hands-off approach and long considered itself a bastion of free speech.

Is Twitter serious this time?

The latest effort to crack down on abuse is reassuring, as Twitter appears to be taking some tangible steps (finally). However, Twitter has an abysmal track record in this department, so some skepticism may be warranted.

In some cases, Twitter doesn't appear to even understand its own policies. For example, a BuzzFeed report yesterday highlighted that Twitter had trouble interpreting its own rules around verification, which has at times been conflated with endorsement. Twitter ignited controversy in November by verifying white supremacist Jason Kessler.

Hopefully, Twitter actually means it this time, and will better articulate its policies both internally and externally.

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