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Alex Cho

Twitter Price Target Cut to $10 At Morgan Stanley

Morgan Stanley analyst Brian Nowak reduced his price target on Twitter from $13.50 to $10 in the past hour. The usage metrics was a huge reason, but he’s also anticipating revenue deceleration to the tune of -15% over the course of FY’17.

Here were the key highlights:

Impact to Our Thesis: TWTR's 4Q:16 results and forward guidance highlight the platform's building challenges to grow. In fact, TWTR's ad declines have begun, as 4Q:16 ad rev fell ~0.5% Y/Y...with US ad revenue falling -7% Y/Y (a deterioration from the -2% Y/Y in 3Q). We estimate 1Q:17 and full year 2017 adjusted EBITDA/non-GAAP opex guidance (TWTR did not guide to revenue) implies the ad declines are set to steepen too. Indeed, we now expect TWTR 1Q:17 ad revenue to fall 12% Y/Y and for full-year 2017 ad revenue to fall 15%.

The lower forward revenue base drives deleverage in TWTR's model (even after 2017's restructuring) as we lower our  17/'18 adjusted EBITDA by 32%/29%. Our PT falls to $10 from $13.50. We reiterate our UW rating. Our $10 PT implies a 8X 2018 EV/EBITDA multiple...and with TWTR now in decline expect multiple compression as the company should begin to trade more like YHOO or AOL.

I think the issues on ad-revenue and usage metrics are key to following TWTR even lower. I’m even surprised by how weak the results were, and honestly no one should have bought Twitter after the failed M&A rumors.

Twitter is a stinker, and I can only imagine Snapchat IPO taking away a lot of cash from the Twitter trade and into SNAP. Roll with the punches and follow em’ lower folks.

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