Analyst Previews Twitter's Q2 Results: Cuts Target, Warns Of 'Purgatory'

In a report published Thursday, Brean Capital analyst Sarah Hindlian argued that Twitter Inc (NYSE: TWTR) is in a "transitional period," which makes it a "difficult" stock for investors to hold.

Hindlian continued that despite increased risk in the short-term, Twitter is still a "valuable asset" that is still nascent, despite the Street having "gotten well ahead of Madison Avenue." However, the analyst remains "constructive" on event-driven advertising opportunities (such as Project Lightning) and the company is still "in the early innings of a long game" which won't necessarily be linear but will yield positive results

Q2 Preview: In-Line Expectations

Hindlian also previewed Twitter's second quarter results which are scheduled to reported July 28 after market close. The analyst is expecting Twitter's print to be in-line with its reiterated guidance and the company is expected to show "~0 million" sequential net adds (ex. SMS Fast) to its monthly active user base.

Hindlian is estimating Twitter to report revenue of $472.2 million which is at the low end of the company's $470 million to $485 million guidance range while the company is expected to earn $0.05 per share. The analyst explained the estimate assumes a "steep deceleration" in year-over-year growth rates to 51 percent on a reported basis versus 74 percent year-over-year last quarter.

Hindlian also estimated Twitter will report its worldwide monthly active user base to be 302 million (ex-SMS Fast), or 308 million including SMS Fast.

Finally, Hindlian offered eight key topics for investors to look out for during the post-earnings conference call: 1) CEO search update, 2) Google partnership updates, 3) impact from foreign exchange will have on growth, 4) monthly active user guidance/trends, 5) SMS Fast Usage guidance/trends, 6) Logged-off user value, 7) CPx/Engagement trends; and 8) improving user case.

Shares remain Buy rated with a price target lowered to $47 from a previous $55 to "reflect near-term risks while the company transitions engagement measurements, searches for a new CEO, and looks to improve the user experience."