4 Reasons Twitter Shares Should Be Sold

Twitter Inc TWTR has become a great example of what not to be in the social media/internet unicorn age. However, President-elect Donald Trump’s affinity for the platform may ensure that it will remain relevant for a few years to come.

Twitter is a prime example of a good product but a bad stock. In a new research report, Aegis Capital Corp has outlined four reasons to sell Twitter after initiating coverage with a Sell rating.

“We love the product and use it multiple times a day, however we have been increasingly concerned,” said the analysts, adding, "We see these challenges as insurmountable in the near-term."

4 Reasons To Sell

1. Continual Management Departures: “Another month, another management departure at Twitter,” the analysts said. “We believe that these continual high-level management exits are disruptive and delays [sic] Twitter’s ability to launch products at the speed required to effectively compete with other rising social media platforms.”
2. Advertising Checks Were Weak: Twitter’s platform has remained an obstacle when it comes to advertiser enthusiasm. Sponsored tweets remain too intrusive compared to other social media platforms. “Advertisers continue to see a better value proposition on competing social media platforms, such as Facebook, Instagram, and Snapchat, in terms of reach, ad products and ROIs – that’s the feedback we continue to get,” Aegis explained.
3. Acquisition Interest Has Waned: A bevy of acquisition interest in late 2016 put Twitter’s stock on a roller-coaster ride. Everyone from Alphabet IncGOOG GOOG and Walt Disney Co DIS to salesforce.com, inc.CRM entered the conversation. “It is apparent that these companies have walked away from acquiring Twitter and we are unsure that they will return,” said Aegis analysts.
4. Increasing Competition From Instagram And SnapChat: The Aegis analysts explained, “Although the use cases are different, Instagram and SnapChat have become fierce competitors for Twitter for both usage and ad dollars. Instagram’s MAUs have surpassed Twitter and we see Instagram’s revenue surpassing Twitter’s in 2018. Worldwide downloads for the SnapChat app on iOS in 2016 have been meaningfully higher than downloads for the Twitter app.”

Words Of Caution

Despite these four justifications for their sell thesis, the analysts also outlined three reasons that they could be wrong in their assumption:

1. "Acquirers can return and buy Twitter."
2. "Product launches, including live events and live video, could prove more successful than we envision at driving usage, and advertisers could redirect budgets to Twitter."
3. "Users could tire of other social media platforms and return to Twitter."

Aegis initiated its coverage with a $14 price target on Twitter.