Argus Analysts See Twitter Going Lower

Twitter Inc TWTR announced its 3Q16 guidance well below expectations. Despite relative weakness, Twitter’s shares would have downside risk until the company is able to “sustainably grow its user base and monetize that growth,” Argus’ Jim Kelleher said in a report. He reiterated a Hold rating on the company.

Concerns Abound

Although Twitter’s revenue grew 20 percent y/y in 2Q, this marked the slowest annual growth since the company went public, analyst Jim Kelleher noted. The top line came short of expectations by $5 million. While non-GAAP EPS growth was strong for 2Q16, investors now seem more concerned about decelerating top-line growth than non-GAAP profitability.

User growth continues to be an issue, and there are investor concerns over Twitter’s inability to capitalize on “an unusually rich media environment, which has included the recent European and Americas soccer championships, the presidential election, and the upcoming Olympics,” Kelleher mentioned.

The analyst expressed concern over disappointing MAU growth eventually impacting advertiser spending, “and that now appears to be happening.” He added that Twitter had failed to capture advertising budgets of more brands in 1Q and then failed to increase its share of brand ad spending in 2Q.

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