Twitter (TWTR), the social media operator, got a lift on Monday after JPMorgan upped its investment rating to overweight from hold and increased its price target to $27 from $20.
In a research report, JPMorgan analyst Doug Anmuth called the company one of its top small-cap ideas for 2018 owing to the fact that the company will perform better over the next year as it continues to create a different “value proposition” for users and it returns to growth in revenue.
"We recognize that TWTR shares are up 30 percent since 3Q earnings in late October and are not cheap at 11.8x 2019E EBITDA on our revised numbers," wrote Anmuth in a note to clients, which was covered by CNBC. "But we believe increasing traction with both users and advertisers will drive upside to 2018 consensus (we are 4 percent above on revenue & 15 percent on EBITDA) and investor sentiment around TWTR remains mixed."
At $27, the JPMorgan analyst thinks shares can gain an additional more than 20%. The stock finished Friday's trading session at $22.23 and was trading at $23.35 in pre-market action Monday, 5% higher.
The way Anmuth sees it, Twitter is benefiting from a handful of things that should boost growth going forward. For starters, there is its push into video and live streaming, which is improving and may result in 10% daily active user growth in 2018. Twitter has been striking deals with all sorts of news and content providers to create original content for its platform as all of the social media companies race to own video content on their platforms. Bloomberg Media, for one example, has launched a round-the-clock television streaming service on Twitter dubbed TicToc by Bloomberg. The new service will have 50 editors, products, social media analysts and marketers offering up the news 24 hours a day. (See more: Bloomberg Launches First-Ever 24/7 Social News Network on Twitter.)
On the revenue growth front next year, Anmuth expects it to be up 8% for the microblogging site operator. He also predicted Twitter will be GAAP profitable in 2018. For its most recent third quarter, Twitter beat Wall Street expectations, reporting adjusted earnings of $0.10 a share and revenue of $590 million. Wall Street had been looking for revenue of $586.7 million and earnings of $0.06 a share. Revenue was down 4% year-over-year but up 3% sequentially. It reported a net loss of $21 million, which is narrower than in past quarters. Daily active user growth, a key figure to measure the performance of the business, increased 14% during the third quarter for Twitter.