After years of underperformance, Twitter Inc (NYSE: TWTR) stock finally delivered some major gains for investors in the first half of 2018. Unfortunately, Twitter’s rally may have already run out of steam.
On Wednesday, Macquarie Research analyst Benjamin Schachter downgraded TWTR stock from “buy” to “neutral.” Schachter says Twitter has competitive positioning in the social media market, and its management has made significant progress in establishing Twitter’s role, monetizing its user base and producing more consistent results. However, he says Twitter still faces lingering usage challenges, and the stock is no longer a compelling value after more than a 85 percent gain in 2018.
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Twitter stock has been under pressure in recent weeks after the company said it has been suspending more than 1 million fake accounts per day in the second quarter as a part of its efforts to clean up its platform and improve user experience. Schachter says this clean-up process is good news for long-term investors, but it likely won’t help with Twitter’s user growth. In fact, not even President Donald Trump’s frequent tweeting has boosted Twitter’s domestic numbers.
“Despite having Trump as perhaps the most high-profile user possible, usage has not dramatically improved over the past couple of years,” Schachter says.
In fact, Twitter’s U.S. monthly active user (MAU) count is up just 10 percent since the end of 2014.
Schachter says the clean-up process could potentially help Twitter hang onto its current users, but that won’t be enough to drive its share price higher.
“Given the high profile of the brand and certain key users, we are concerned that MAU growth will take significant investment to improve meaningfully from current levels,” he says.
Schachter isn’t the only Wall Street analyst steering clear of TWTR stock. Bank of America analyst Justin Post says Twitter’s valuation suggests daily active user growth outpacing Facebook ( FB) and other social media peers. Post is expecting the opposite.
“While we have underestimated the 2018 rebound in Twitter advertising revenue growth and do not expect recent account closures to impact 2Q revenues, we remain cautious on user growth trends versus social peers and would expect revenue growth to converge toward daily user growth over time (10 percent DAU growth last quarter),” Post says.
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In addition to the “neutral” rating, Macquarie has a $42 price target for Twitter. Bank of America has an “underperform” rating and $27 target for TWTR stock.
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No User Growth? No Upside For Twitter Inc (TWTR) Stock originally appeared on usnews.com
