Implied Purchase Price For Twitter Is 'Too High'

MKM Partners’ Rob Sanderson believes Twitter Inc (NYSE: TWTR) shares are being bolstered by continuing M&A speculations, well above the stock price warranted by the company’s fundamentals.

Sanderson maintains a Neutral rating on the company, with a price target of $18.50.

Price Too High

Sanderson believes that while Twitter had “potential strategic value for an acquirer [...] the implied purchase price is too high given inherent risk in turning the network around.”

While management had said that DAU growth had accelerated in Q3, the analyst noted that this acceleration was still to appear in the reported metrics, stating that the 10 million year on year overall and 1 million in the United States were still fairly weak.

Turnover Concerns

“We are encouraged by management commentary on inflection on engagement metrics and see significant potential behind Live events, but are discouraged by financial results and continued turnover of senior management,” the analyst mentioned.

Twitter announced on November 9 that Adam Bain had decided to step down from the position of chief operations officer.

The stock declined 5.7 percent following the news.

The company is in the process of implementing workforce reduction, expecting to cut the employee base by 9 percent. This follows the about 8 percent cut in 2015.

“Management also said they are focused on driving GAAP profitability, from being primarily nonGAAP focused to date. On a GAAP basis, TWTR is likely going to lose around $320 million this year,” Sanderson stated.

The analyst pointed out that some investors believe that this could be an attempt by management to “clean up” before a potential sale.

At last check, Twitter was up 1.21 percent at $18.77.