Twitter's Upside Following Earnings 'Unwarranted,' Pivotal Downgrades To Sell

Twitter Inc TWTR reported fourth quarter results in which the company earned a profit for the first time ever. Not all are pleased.

The Analyst

Pivotal Research Group's Brian Wieser downgraded Twitter's stock from Hold to Sell with an unchanged $21 price target.

The Thesis

Heading into Thursday's report, expectations were for the social media company to show ongoing progress to become a "durable, if niche-y" platform for digital advertising, Wieser said in a note. While earnings report did come in better-than-expected, it also reflected a turnaround that is merely "slightly ahead of schedule."

There should be no doubt Twitter's earnings marks an "important milestone" in its ongoing turnaround progress, Wieser said, but it's "hardly a game-changer" for Twitter as the turnaround has merely been brought forward by one quarter. The surge in Twitter's stock removes the likelihood of the company being bought out, he said.

It's important for investors to understand that at an underlying level, Twitter's appeal is unlikely to "break out of its niche" any time soon, according to Wieser. This comes at a time when rival social media platforms are still capturing the bulk of the growth in advertising spending.

Bottom line, it would be reasonable for Twitter to sustain a low double digit annual growth rate for the mid-term while improving its margins, Wieser concluded, but these assumptions were already factored in heading into the print and with the stock trading well above the analyst's $21 price target, a downgrade is warranted.

Price Action

Twitter's stock hit a new multi-year high of $35.00 Thursday and was last seen trading at $31.68, up 17.6 percent.

Related Links:

This Twitter Analyst Saw In December What Few Others Did

Chart: Snap's Trajectory Looks More Like Twitter Than Facebook