Suntrust Downgrade Twitter, Says 'Catalysts Haven't Inflected Metrics'

Robert S. Peck of SunTrust Robinson Humphrey mentioned that research during the quarter indicated that user growth and engagement for Twitter Inc TWTR remain challenged.

Peck downgraded the rating on the company from Buy to Neutral, with a price target of $18.

Current Challenges

The analyst believes that “increasing monetization can only go so far, with limited new product introductions, increasing competition, and a challenging advertising background.”

Peck also stated that given the user growth and monetization challenges, the guidance and estimates appear to be reasonable for the company, rather than overly conservative.

However, the analyst pointed out some challenges that could limit upside, such as 2Q user growth continuing to be challenged, with newer products still to drive user growth.

Peck also stated that “engagement from the new users appears lower, creating a slight drag on daily user growth.”

In addition, O&O growth remains slow, as brand penetration matures in the U.S. and focus shifts to driving wallet share in an intensely competitive market.

Catalysts Haven’t Materialized

Peck also noted that initiatives, such as logged-off users, Moments, Periscope, TellApart, and others would act as catalysts for monetization and users. However, these have not had any meaningful impact as yet.

“We remain optimistic about the long-term potential of these and other new initiatives, but will need to see more evidence to get constructive at these levels,” Peck added.

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