Expect Twitter's Top-Line To Continue Its Decline This Year

Twitter Inc TWTR's first quarter earnings report contained a mix bag of good and bad metrics.

On the positive front, Twitter impressed investors with strong user engagement growth. On the other hand, Twitter failed to translate the increased engagement in user activity to revenue as revenue fell on a year-over-year basis for the first time ever as a public company.

Deutsche Bank: More Confidence Needed

Deutsche Bank's Lloyd Walmsley commented in a report that although Twitter is a "mature" social media company, it will take time to convince old advertisers to come back and pay for ad space on the platform.

The analyst believes Twitter is "pruning its product offering and doing so in the largest bucket of online ad spend." Granted, the long-term prospects of this is encouraging, achieving a longer-term goal of boosting ad revenue represents a near-term headwind that will stay in place through 2017.

But if management were to sustain its accelerating usage growth and show higher ad revenue metrics, then the stock "could have further room to run." In the meantime, the analyst needs to see incremental signs of confidence in the sustainability in user growth, along with more signs of core stability.

Bottom line, Twitter's stock now boasts a balanced overall risk to reward profile, which prompted the analyst to maintain a Hold rating and $17 price target.

Loop Maintains At Sell

Blake Harper of Loop Capital Markets maintained a Sell rating on Twitter with an unchanged $10 price target.

According to Harper, Twitter's usage growth was "the most impressive" metric but it's important to keep in mind that Twitter is slashing investments in several products and services that will result in an EBITDA decline through 2017.

Harper said it will discontinue investing in segments, which were part of the adtech startup TellApart acquisition and also other ad areas. Instead, the company is going to focus on engineering and marketing to support its video ad strategy.

All in, the analyst sees Twitter's revenue to fall 9 to 27 percent on a year-over-year basis in the second quarter. This may also result in further declines in Twitter's average revenue per user (ARPU) for U.S. monthly active users.

Bottom line, Harper acknowledged he's "encouraged" by Twitter's user growth metrics, but his outlook for a declining revenue implies there is downside to Twitter's stock.

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