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April 8, 2020, 11:07 a.m. EDT

Twitter is rising to the coronavirus challenge but monetization may be tough, analyst says

A Bernstein analyst ended his bearish call but remains on the sidelines

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By Emily Bary

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Twitter’s role as an information hub has become even more important in the COVID-19 era, an analyst writes.

Twitter Inc.’s position “at the fulcrum of news and conversation during this unprecedented global event” prompted one formerly bearish analyst to take a slightly rosier view of the stock Wednesday.

Bernstein’s Mark Shmulik upgraded the shares to market perform from underperform in a note to clients, writing that while Twitter /zigman2/quotes/203180645/composite TWTR -0.10%  faces some headwinds related to the COVID-19 outbreak, including the postponement of many live events that drive marketing spending, these challenges are priced into the company’s stock.

Facebook in the age of COVID-19: Users are online, but will advertisers pay to get to them?

“While the full extent of the COVID fallout is hard to gauge, near-term headwinds are at least partially known following the company’s withdrawal of [first-quarter] guidance and the stock is among the hardest hit in our coverage since the drawdown started (-33% versus Facebook /zigman2/quotes/205064656/composite FB +0.69%  -22% for example),” he wrote.

Though there are some near-term challenges, Shmulik is comforted by the fact that many big events have merely been postponed, not lost forever. And he thinks Elliott Management Corp. and Silver Lake’s involvement with the company “should accelerate [the] pace of change” as far as product improvements.

Shmulik also pointed to the company’s disclosure of a recent uptick in user engagement during the COVID-19 outbreak, though he warned investors not to get too excited.

“We caution about placing too much stock into engagement as (1) everyone has seen a spike in engagement (2) unclear what happens to engagement levels post-COVID, and (3) it’s valueless if you can’t monetize,” he wrote.

Read: Twitter could exit the COVID-19 crisis stronger than before, Goldman Sachs says

He remains on the sidelines in part due to concerns about Twitter’s ability to monetize its active user base during the crisis. “It’s one thing to advertise alongside the highlights of a game-winning NCAA basketball shot, it’s quite another to appear next to a mortality rate projection,” Shmulik said.

He raised his price target to $29 from $27 in conjunction with his upgrade. Twitter shares are up 4.3% in Wednesday trading, though they’ve dropped 20% over the past month as the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.45%  has lost 9.6%.

$ 37.40
-0.04 -0.10%
Volume: 5.82M
Aug. 11, 2020 12:18p
P/E Ratio
Dividend Yield
Market Cap
$29.61 billion
Rev. per Employee
US : U.S.: Nasdaq
$ 264.81
+1.81 +0.69%
Volume: 13.51M
Aug. 11, 2020 12:18p
P/E Ratio
Dividend Yield
Market Cap
$749.10 billion
Rev. per Employee
+15.13 +0.45%
Volume: 1.38B
Aug. 11, 2020 12:18p

Emily Bary is a MarketWatch reporter based in New York.

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