The Twitter 'Hope Trade' Is Dead

According to long-time bull KeyBanc Capital Markets analyst Evan Wilson, Twitter Inc TWTR is beginning to disappoint and the sky ahead looks gloomy.

Wilson began by reaffirming that KeyBanc had "stuck with" Twitter and "no one likes a downgrade," effectively executing the new-leadership "hope trade" so closely held throughout Twitter's tumultuous recent history.

The Downgrade

"We lack confidence in a turnaround," Wilson explained, "No one likes a downgrade after an earnings report, especially people as stubborn as the ones with their names on this report."

"But," he added, "this earnings report was a significant event. It gave Twitter an opportunity to communicate to investors, with plenty of time for new management to prepare, how Twitter was going to fix its user growth."

"After Q4, with the historical precedent (and our call) so clearly wrong, we are downgrading to Sector Weight," according to Wilson.

Related Link: Twitter Investors Brush Off First-Ever Drop In U.S. Users

Twitter Failed To Inspire

Further justifying the downgrade, Wilson commented, "TWTR has set a new historical precedent in failing to inspire any improvement in investor sentiment with a new vision."

Based upon this disappointing revelation, Wilson admitted, "We are also not very confident in the turnaround plan, so we are downgrading shares to square them with the rest of our continued bearish SMID Internet view."

Regarding the sector, Wilson reiterated that the environment as a whole does not look too cheery:

"The market is currently ascribing zero value to Yahoo! (Which also is challenged, competing against bigger data-rich platforms and has user growth struggles), has a dearth of new high-multiple comparables, almost no acquisition activity from likely buyers and is penalizing companies for high stock-based compensation. We see potential downside risk to $11, which is 2x 2016 EV/S and 1X PEG on 2016 EPS. We are sure TWTR will pop on take-out speculation and/or a more favorable market at some time in 2016. Still, we would rather sit out the current drama in the Internet and recommend GOOGL or take advantage of the sell-off in LNKD."

At time of writing, Twitter was trading down 4 percent on the day at $14.38.