3 Reasons Deutsche Downgraded Twitter

Deutsche Bank’s Lloyd Walmsley expressed concern regarding Twitter Inc TWTR, based on “(1) substantial challenges across both the DR and branded side of the company’s ad business, (2) stagnant MAU growth despite massive publicity of late, and (3) recent checks from large advertisers planning to move budget away from Twitter.”

The analyst downgraded the rating on the company from Buy to Hold, while lowering the price target from $22 to $15.

Some Concerns

Walmsley believes that although Twitter’s live video appears promising, it is likely to take time to ramp and therefore entails uncertainty regarding unit economics.

“We would get positive on signs of stability in the core ad products and/or with more visibility into when video can drive overall growth,” the analyst stated.

Q4 Results

Among the positives reported by the company for Q4, Daily Active User growth accelerated 11 percent year-on-year, with eight of the top 10 markets showing increased year-on-year growth, compared to the previous quarter, driven by product enhancements associated with the timeline and notifications.

In addition, there have been signs that NFL live streaming gained traction, with unique viewers per game rising by 1.15 million from the first game to an average of 3.5 million per game during the quarter.

Looking Ahead

Walmsley also mentioned that management “highlighted other ways it can ramp monetization in the future (premium content, pay-perview content, more moments/promoted tweets),” while adding, “While we do not necessarily see a ramp in those products coming in 2017, we understand them as levers TWTR can pull to improve monetization down the line.”

On the other hand, the analyst pointed out that Twitter’s guidance was “very disappointing.”

“While DAU growth accelerated, the company seems unable to scale the important top of funnel MAU metric. This comes despite President Trump’s average of 7 tweets per day in the last month and the associated publicity,” Walmsley added.

Shares of Twitter were down 4.05 percent at $15.74.