There is More Risk than Reward in Twitter (TWTR) Stock

Shares of Twitter Inc (NYSE:TWTR) fell more than 4 percent this morning after Evercore ISI, an investment banking advisory firm, lowered its rating on the company to ‘Sell’ from ‘Hold’. The firm also cut their 12-month base case estimate on Twitter stock to $17 from $18, suggesting a potential downside of about 13% from the issue’s $19.56 open.

Twitter is down 28.73% year-over-year and 12.83% year-to-date. The stock however, has enjoyed some significant gains in the past quarter. The shares of the struggling micro-blogging platform are up nearly 38% since the start of May. According to Evercore, the underlying reason behind some of Twitter’s recent upward movement is its real-time data source and the possibility of the company being strapped to a huge data and infrastructure stack. Nevertheless, the firm believes that as broadcasting capacities on rival social media sites win influence with Twitter’s users and advertisers, there is more risk than reward in the stock, especially ahead of Snapchat’s anticipated monetization ramp this fall.

Evercore also commented on Twitter’s growth prospects and the continued divergence in business and long-term growth prospects with Facebook (NASDAQ:FB), saying the company’s Q316 revenue guidance reflects only a 5 percent growth at its midpoint, against Facebook’s approximately 50 percent. Additionally, the firm cautioned TWTR longs [_{^{via CNBC}}] that shares are “already trading at a multiple in-line, or above, of what Microsoft had paid for LinkedIn Corp. (NYSE:LNKD) in June, when adjusted for stock compensation.”

Takeover Rumors

As Twitter continues to struggle to find its true place in the current social media age, renewed speculation about the platform’s acquisition, and even its end for that matter, continue to surface. In fact, last week it was suggested that the social media messaging service will be shutting down in 2017. As the rumor started trending with more than 100,000 tweets mentioning the #SaveTwitter hashtag, the company had to step in and denounce the claim as groundless.

“There is absolutely no truth to the claims whatsoever,” a spokesman for Twitter commented.

Despite the rejection and the fact the company has always steadfastly resisted acquisition, if Twitter’s fortunes do not get significantly better, in terms of monthly active user and revenue growth, they will have no choice but to sell. Addressing this possibility, SunTrust Robinson’s Robert Peck recently told CNBC that “it’s inevitable that Twitter gets acquired if current trends continue, and that could happen as early as” 2017.”

Ross Levinsohn, former Yahoo (NASDAQ:YHOO) interim CEO, predicted last month that Twitter will be acquired within 24 months.

With an $14 billion market cap today, Twitter would be an easy acquisition for the likes of Google (NASDAQ:GOOGL) or Facebook. If this happens, it will be saddening to see Twitter-whose fortunes were once discussed with big cap names, become just another tech subsidiary.

Twitter Stock Action

Shares of Twitter have lost $0.85 to $19.32 in mid-day trading on Thursday. The stock recently broke back above the $20 level for the first time since January of this year, but is back below that level. At the current price, the next support is at $18.88 and $18.55, respectively.

The San Francisco, California-based company has a median Street price target of $16.00 with a high target of $23.00. Twitter Inc. is down 28.73% year-over-year, compared with a 4.07% gain in the S&P 500.

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