The article highlights why Merrill Lynch is unhappy over Twitter’s intended restructuring while most analysts consider it a positive
On Wednesday, in a research note, Merrill Lynch reaffirms a Neutral rating along with $34 target price on the stock of Twitter. The sell side firm thinks that the social media giant’s recent declaration regarding restructuring is a head scratcher and possibly can be a substantial drag on the stock growth.
Twitter Inc. has announced recently that it is going to lay-off roughly 336 employees which are around 8% of its total workforce the main idea behind this is to streamline its engineering and product teams. Most of the analysts are in restructuring favor, as they look at it as an effort on financial discipline under Jack Dorsey, new Chief Executive Officer. While, Merrill Lynch thinks that these layoffs might not send a positive signal to the workers in a reasonable engineering workers marketplace.
The sell side firm also highlighted that the layoffs announcement represents slightly over a quarter of the recruitment, as Twitter hired nearly 225 workers every quarter since the past six quarters. However, employees’ layoffs still indicate that the social media giants’ revenue or user growth guidance is not as strong as earlier, which makes the firm view it as an adverse development.
Together with the restructuring of Twitter also shared its opinion of the financial results for the third quarter of FY15. The company feels that its third quarter EBITDA and revenue to come inline or beyond the high end of its earlier provider estimation of $110 to $115 million and $545 to $560 million, respectively.
The firm notes that the Twitter stock after the layoffs announcement closed up by 1 percent, which displays an optimistic view on the probable gross margin in the coming quarters. Merrill Lynch thinks that monthly active users and revenue are more significant at this point of time of company’s life cycle.
Most of the analysts on the Street having coverage on the company stock have a neutral viewpoint on the stock. Almost 16 analysts suggest a Buy rating while 26 recommend a Hold and just one gave it a Sell rating. The average twelve month target price on the stock stands at $37.52, which signifies an upside return potential of 29.5% compared with present stock price.
In a memo to employees, Mr. Dorsey labeled the layoffs as a path to progress in the efforts of the company. He wrote: “We are in charge with the utmost respect for each and every person.Twitter will go to great lengths to deal with each individual by providing generous exit packages and help finding a new job. This isn’t easy. But it is right. The world needs a strong Twitter, and this is another step to get there,”