Goldman upgrades Twitter to ‘buy’, sees minimal downside risk for Snap

On Friday, Goldman Sachs upgraded shares of Twitter to buy from neutral, cuts price target to $35 from $39, on the belief that the company's user growth and engagement is benefiting meaningfully from the growth in conversations around COVID-19. Separately, the firm reiterated Snap's buy rating as it sees minimal downside risk to near-term estimates.

Video Transcript

JEN ROGERS: Let's get to our call of the day. It is on Twitter. We've got Goldman Sachs upgrading Twitter to buy from neutral-- cut the price target from $39 to $35. Stock down 40% from its highs.

So, you know, this one-- I'm not sure about this one. Myles, you're a heavy Twitter user. We've talked about it a lot before. Goldman seems to think people are going to be in here. The growth of the conversation is going to be up because people are on discussing COVID-19. But isn't Twitter going to have the same issue that everybody else is with advertising in the end?

MYLES UDLAND: Yeah. I mean, and this is a company that already monetizes its users as poorly as any major social network. And so I have no doubt that, you know, engagement metrics are up hugely on Twitter. I have no doubt.

And remember, they signed that agreement with Elliott right before this-- this all popped off. That was probably what, three, four weeks ago? And part of that was the company pledging to drive user growth once again. They're targeting an increase in their monthly active users, I think by 20% a quarter or something like that.

It's a big number. They're pledging to have some big user growth here, and I couldn't imagine the company having a better opportunity to do that. I assume they'll absolutely execute on that. But everyone here-- I mean, Facebook, Google, Amazon's ad business, Twitter-- they're all going to be feeling the pinch of a recessionary economy where you just have less advertisers coming into your marketplace regardless of what that marketplace is.

And so this is a stock that I think everyone has wanted to love because everyone knows the service so well. But with the current management group, which has been the management group now for a few years, it's just never been what everyone always wanted it to be. So I mean, I think Goldman's not going to be the last shot that comes out and takes a shot on this with a very similar thesis. But as Jared's showing the charts here, the stock has just done nothing for years and years.

DAN ROBERTS: Let me add, too, you guys, with Twitter, It's ironic because what tech platform, or at least what social tech platform right now, isn't benefiting from the sort of need for rapid, real-time news and from everyone staying at home? I mean, we know that Facebook has seen a resurgence. Two days ago, we had Melody Hahm on this show talking to us about how the big tech lash is on hold amid all this, which is kind of interesting.

But in terms of new user growth, or at least in terms of attracting new users to sign up, that's a bigger bridge and has always been a problem for a few years now. I mean, it's one thing to say that people who already were big Twitter power users, or at least used Twitter throughout the day, are probably spending more time on the platform. I certainly believe that. But are people who have managed to stay off of Twitter all this time now deciding to sign up amid coronavirus?

I mean, there are a lot of outlets to get your news, you know. Whether for better or worse, a lot of people are still getting their news on Facebook, probably more of them, and a lot of them maybe turning back to cable TV or to streaming news programs right now. So yeah, I'm a little wary on this note too, and I think Jen makes a good point about advertisers. Again, I'm sure people are using Twitter more now, but are they amassing new users? I don't know.

JEN ROGERS: And even when you go and use it, do you want to spend a lot of time there, I think, is one question. And that goes to the other note in here, which is Snap. And they updated their estimates and their target. They remain a buy on Snap.

And it's funny. I kind of feel like that-- I mean, I know the two are completely different, but in a way, Snap being used as more of a communication tool right now between teens, that their engagement is actually spiking. The downloads are looking good. Could this actually be a chance for a company like Snap to make some strides? Because it's a different base that they're going from. They also are-- have just a lower base in general out here. Dan Roberts?

DAN ROBERTS: Well, with Snap, Jen, I think we also have to separate entertainment value from news value, right? I mean, it can't be that all these platforms are for all things. So I thought it was interesting on the Goldman note with Twitter, one of the elements that Goldman likes-- using Twitter for watching broadcasts of live events, e.g., COVID-19 daily briefings, which-- I don't know.

If people are, you know, using Twitter more than they did before to watch the president's coronavirus briefings, that might be a stretch because that's either people who already were using Twitter for that, or if it's people who are watching those briefings, I think there are a lot of places to watch them. Snap-- it seems to me the reason to be bullish is entertainment value-- that is, escapism.

So which is it? You know? All these social platforms might be benefiting in that regard of people using them more because they're trying to communicate with friends, because we're social distancing. But then with Twitter, is it-- is it the news value? And I'm glad that Myles mentioned the Elliott Management element because we kind of thought that Jack Dorsey was maybe hanging by a string as CEO of Twitter here. We'll see.

Maybe if they deliver on these promises, or at least what Goldman sees as promise, then maybe it helps Dorsey. But I just don't know. Anecdotally, I think we all see certain apps that are clearly benefiting right now, and I don't see Twitter or Snap at the top of that list. I see TikTok as one that is very obviously benefiting.

MYLES UDLAND: I would just add that in general, I think-- I think we're going to be hard pressed to actually find any companies that, quote unquote, "win" from this and that the entire framing of anything as winning out of this because of the type of recession that this is and the way that I think it's going to unfold, the grim backdrop of the economic fallout, I think is going to make it--

You know, we just see on the tape right now, Walmart sales up 20%. Like, OK, you took a picture of Walmarts. Everyone knew that people were buying stuff at Costcos and Walmarts. But I think the notion that any service is going to position itself in this environment to take advantage of consumers in a way it couldn't previously, I think, is probably going to end up being wrong.

DAN ROBERTS: Except maybe Netflix? Zoom?

MYLES UDLAND: But Netflix-- But my point was set up previously because Netflix was already basically winning people streaming stuff at home. I think that Zoom is maybe your one-- like, that's your one example. But that there's going to be more than one Zoom-- I would imagine that the answer is going to probably be no.

DAN ROBERTS: Peloton might be an example too.

JEN ROGERS: Yeah, but on Peloton and Netflix and all these, to Myles's point--

MYLES UDLAND: Are they winning? Are they winning?

JEN ROGERS: If this gets bad enough-- Utilities are down because people are worried, all right, is anyone going to be able to pay their electric bill? Sooner or later, Netflix-- even though I've argued it's not a luxury and that it is more like a utility-- there's going to be churn on these places. You will see people cutting their spending, and that hits everybody when you're looking for winners and losers in here.