Twitter Inc‘s (TWTR) stock is sinking fast post-earnings, as the embattled social networking service continues to receive one downgrade after another.
Yesterday Wedbush lowered their TWTR price target to $14 from $20, noting the management appears complacent about the status quo and unfocused on the lack of user growth. The firm believes Twitter will grow very slowly unless it focuses on attracting new users and demonstrates its value proposition to people who don’t use the service. In the second quarter, monthly active users, a key metric for social networks, were 313 million, slightly higher from 310 million in the first quarter of the year.
Wedbush also said that Twitter’s recent stock price appreciation with $19 levels not seen since last March, should be attributed to speculation the company may be acquired.
In addition to Wedbush, Canaccord Genuity also lowered estimates on Twitter stock. The firm downgraded the name’s rating to a ‘Hold’ from a ‘Buy’ after cutting the stock’s 12-month base case estimate to $16 from $20. According to Canaccord, Twitter could still be an attractive acquisition, but firm views this as significant upside risk. The firm also cut its TWTR estimates for fiscal-year 2016 to $2.58 billion in revenue from a prior $2.79 billion.
Twitter was also downgraded to ‘Hold’ with a $16 from $18 price target at Axiom Capital, and to ‘Hold’ from ‘Buy’ at Cantor Fitzgerald.
Twitter’s Stock Value
Twitter’s stock value is currently tanking, down more than 14 percent since the San Francisco, CA-based company guided Q3 revenues that fell well short of Wall Street expectations. The company’s guidance for the third-quarter of fiscal 2016 includes expected revenue of $590 million to $610 million, way below the $681.34 million the Street was anticipating.
“We’re seeing a continuation of the trends discussed last quarter with less overall advertiser demand than expected,” Twitter said in its letter to shareholders on Tuesday. Twitter’s ad business was in the double-digits in fiscal 2014, but this is not the case anymore.
It appears that Twitter’s efforts to increase the number of users or engagement levels, generate more revenue, and above all prove that it can be more than a niche product, are not working. In addition to that, Twitter’s lack of profitability-$107 million in net losses, or ($0.15) a share, on a GAAP-basis in 2Q16, makes a credible argument in favor of the name as a long-term hold almost impossible.
If current trends persist, in terms of top-line prospects and user growth figures continuing to deteriorate, it might just be a matter of time before Twitter stock breaks below $13, prompting activist investors to start demanding the company put itself on the auction block. In fact, last month MoffettNathanson, a research company specializing in analysis of media firms and their market value, was quoted as saying it sees “no compelling reason” to own the name other than the possibility it may be bought.
Twitter’s Stock Prospects
A company can certainly reinvent itself with the right product and business model. But in Twitter’s case investors are not convinced the social network will be able to jump start its growth amid efforts to improve its complicated interface, which makes it less attractive to new users, and more importantly, prove that it can be a mainstream online service.
Furthermore, TWTR is down more than 39% since it went public on the NYSE in Nov. 2013. It has already plunged about 15% in the last 5 trading sessions alone, currently trading at $15.77. The stock has also nosedived by nearly 60 percent from its 52-week high of $36.67, while the S&P 500 index has risen about 4 percent over the same period.
So the question is, is there any hope left in Twitter? Maybe. At the same time, it’s tough to argue against MoffettNathanson’s grim but objective analysis. So needless to say, the overall picture on Twitter remains predominantly bearish.