Twitter Stock: Why There’s More Trouble Ahead

Twitter Stock

Shares of Twitter Inc (TWTR) fell more than 2 percent in pre-market trade Monday after SunTrust’s Robert Peck lowered his rating on the name to ‘Neutral’ from ‘Buy,’ saying in a research note to investors that despite new products and services released by the social networking service to improve its usability, research in the quarter suggests that user growth and engagement “continue to be challenged.”

Peck, who maintained his $18 12-month base case estimate on the stock, noted that rising monetization “can only go so far.” The market analyst highlighted Twitter’s “limited new product introductions,” increasing competition from Snapchat and a challenging advertising background.

Twitter was also downgraded to ‘Neutral’ from ‘Buy’ this morning at Monness Crespi & Hardt. The firm said that despite overhauling itself with  a new management, a refined product vision, and recalibration of expectations any improvements the company has made have been incremental, rather than what’s really needed to attract mass market or improve the monetization of its service.

It goes without saying that things aren’t looking up for San Francisco-based Twitter. While the company’s influence in the social network space is still massive, the service continues to have trouble attracting and retaining active monthly users [MAUs]. Twitter has seen user growth stall as it continues to struggle to move beyond the status of a niche social network. The fact that ad agencies still spent most of their ad budgets on Facebook (FB) and Google (GOOGL) is quite telling. Furthermore, Twitter is seemingly stuck at the 320 million monthly user mark. Some 320 million people counted as Twitter MAUs in the three months ending December 31, 2015, exactly the same as three months ago. Do I need to say “stagnation”?!

Obviously, these struggles are one of the many reasons some Twitter investors are losing patience with the name. Twitter’s shares have plunged roughly 22 percent year-to-date. While they’re up 8.6 percent over the last three months, they’re down more than 48% on a year-over-year basis. The company’s stock is down 74.34 percent from its all-time high of $69 a share set on January 3, 2014. Coincidentally, TWTR advanced more than 20 percent in the last 4 weeks. The surge occurred on increased takeover speculation following Microsoft’s (MSFT) $26.2 billion acquisition of LinkedIn Corporation (LNKD). Shares of LinkedIn spiked nearly 50% after the Seattle-based software giant agreed to buy one of the biggest players in the social networking space at a huge premium.

Given all of this, it’s not surprising that Twitter shareholders are thinking on the probability of an equally great deal, as it becomes clearer that an acquisition might be what’s best for the company. And in fact there’s growing sentiment that the struggling social website, whose unique content still makes it a good takeout target, will have a better chance to reach its potential under new owners who will be able to address its flaws.

“Twitter can be so much more than it is but there is a remarkable failure of imagination and focus at the company…You simply can’t look at Twitter the way it is. You have to look at it as if it were professionally run by a full-time CEO, ” Jim Cramer was quoted as saying during an interview last month.

Twitter stock recently traded at $17.60, a loss of $0.48 over Friday’s closing price. The name has a current market capitalization of $12.26 billion.

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