Shares of Twitter (TWTR ) sunk on Monday following a Friday report from The Washington Post that the social media company had suspended millions of accounts. Yet, Twitter quickly assured people that most of the removed accounts aren’t included in its metrics. Plus J.P. Morgan (JPM ) thinks yesterday’s slip represents a solid buying opportunity. And that’s just the start of why Twitter stock looks like a strong buy right now.
The Report
The Post reported last Friday that Twitter’s recent efforts to suspend and remove accounts hoped to “lessen the flow of disinformation on the platform.” Data obtained by The Post reportedly showed that Twitter has been suspending more than 1 million accounts per day in recent months.
The worry here was that the removal or suspension of roughly 70 million accounts would negatively impact Twitter’s monthly active user totals, which reached 336 million last quarter. Twitter’s CFO Ned Segal took to his company’s platform on Monday to respond to concerns, stating that “most accounts we remove are not included in our reported metrics as they have not been active on the platform for 30 days or more, or we catch them at sign up and they are never counted.”
“If we removed 70M accounts from our reported metrics, you would hear directly from us,” Segal continued. "This article reflects us getting better at improving the health of the service. Look forward to talking more on our earnings call July 27!”
J.P. Morgan
Shares of Twitter closed down 5.4% on Monday despite its CFO’s reassurance that it won’t end the quarter with 70 million fewer MAUs, which would have an extremely negative impact on Twitter’s business and stock price. Based on this, J.P. Morgan analysts see Monday’s drop off as a great time to buy shares of red-hot Twitter.
J.P. Morgan analyst Doug Anmuth reiterated his “overweight” rating and reaffirmed his $50 price target for Twitter, which represented a 13% upside from Monday’s close. “We’d be taking advantage of the weakness and recommend buying Twitter shares,” Anmuth wrote in a note to clients Monday.
He also noted that the removal of “spammy and suspicious” accounts should be seen as a positive for the company going forward. “Importantly, improving quality on the platform is critical for the health of the service and attracting more users and driving stronger engagement over time,” he wrote.
Twitter, like Facebook (FB ) and other social media platforms have to navigate the somewhat murky waters of troll accounts and the spreading of “fake news.” Luckily for investors, it seems that Twitter has been relatively proactive about cleaning up this problem.
Live Video
Twitter grew its daily active user base by 10% in Q1, while its MAUs climbed by 3% to 336 million. The company also noted that it streamed more than 1,300 live broadcasts last quarter and announced that it signed more than 30 new partnerships, including deals with the likes of Fox Sports (FOXA ) , NBCUniversal (CMCSA ) , Viacom (VIAB ) , and Disney (DIS ) —featuring a ton of ESPN programming and a FIFA World Cup partnership.
Twitter’s push into streaming sports, which is one of the last things people need to watch live, is also expected to pay off. The company now has partnerships with MLS and MLB for live games, and more.
The key here is that live video attracts more advertisers, and like Facebook, Twitter makes most of its money from advertising. The company’s advertising sales—which accounted for roughly 86% of Twitter’s $665 million total Q1 revenues—climbed 21% from $474 million in the year-ago period to $575 million. Meanwhile, the social media company’s international ad revenue surged 52%.
Outlook
Shares of Twitter have skyrocketed 135% over the last year, which crushes the S&P 500’s 15.3% climb and also tops Amazon’s (AMZN ) 76%. This climb includes a nearly 50% surge over the last three months on the back of its impressive first quarter.
Looking ahead to the second quarter—which the company is set to report on July 27—Twitter is expected to see its adjusted Q2 earnings skyrocket 112.5% to touch $0.17 per share, based on our current Zacks Consensus Estimates. The company’s fiscal 2018 earnings are also projected to soar by 72.7% to reach $0.76 per share.
The company is projected to see its Q2 revenues pop by nearly 22% to hit $700.02 million. Meanwhile, for the current fiscal year, Twitter revenues are projected to reach $2.94 billion, which would mark a roughly 20% surge.
Bottom Line
Twitter is currently a Zacks Rank #1 (Strong Buy) and sports “A” grades for Growth and Momentum in our Style Scores system. The company is expected to expand its EPS figure at an annualized rate of 23.1% over the next three to five years.
Twitter is also set to become an even bigger player in the streaming video revolution, and Monday’s selloff presents a solid buying opportunity.
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