Analyst Says Expect The Worst In Twitter's Q3

Investors working under the assumption that the worst for Twitter Inc (NYSE: TWTR) has passed may be mistaken, analysts at Cantor Fitzgerald said in a research report. The firm's Kip Paulson maintains a Neutral rating on Twitter's stock with an unchanged $16 price target.

Twitter is scheduled to report its third-quarter earnings on Thursday before the market open and expectations are quite low, Paulson said (see his track record here). The social media company is likely to report a continuation in revenue declines, flattish monthly active user growth amid an intense competition to win over social ad dollars from marketers.

While Twitter has reported a double-digit daily active user growth in each of the past four consecutive quarters, MAU trends flatlined in the second quarter and U.S. MAU actually fell by 2 million. As such, the trajectory of DAUs/MAUs will be "particularly important" in the third-quarter earnings report.

There are also concerns that Twitter's management will report declines in Promoted Tweets and other initiatives which may persist through year-end.

"As a result, we remain on the sidelines until we see tangible signs of MAU growth or sizable monetization improvement that offsets declines in Promoted Tweet and DR formats," the analyst wrote.

Here is a summary of some of the metrics the analyst is modeling for Twitter's third quarter:

• Revenue: decrease 5.7 percent year-over-year to $581.1 million.
• Ad revenue to decrease 9.0 percent year-over-year to $495.9 million.
• Ad revenue per MAU to decrease 12.6 percent year-over-year to $1.50.
• EBITDA: decrease of 19.7 percent year-over-year to $154.5 million.

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