Twitter Inc. might have legions of diehard fans and investors but Wall Street has all but given up on the firm. One of the reasons the market is bearish on Twitter is its dismal user growth without which there can’t be decent gains in revenue. Secondly, the lack of corporate direction as the firm is yet to pick a permanent CEO adds to the uncertainties surrounding the stock.
Two Wall Street analysts have been quite vocal in their bearish outlook on the stock and you’ll be hard-pressed not to agree with them. Analysts at Trefis have a report detailing the bearish prospects of Twitter. More so, JC Parets, Founder of Eagle Bay Capital also have a gloomy outlook on the stock. These bearish views echo the negative views about where the shares of Twitter are headed in the short to medium terms.
Twitter’s bearish case from Eagle Bay Capital
JC Parets of Eagle Bay Capital did not mince words about the state of Twitter when he said that the firm is a “disaster”. He believes that there is no point in staying long in Twitter and neither will a short move make much sense because the stock hasn’t found a bottom. He opines that his favored strategy is to “fade any rallies that extend into the $32 to $34 per share region”.
Parets believes that Twitter won’t see a change in its prospects until it shows decent user growth. In his words, “Client demand is what moves markets,” and Twitter has very little demand. In the last one year the share price of Twitter has fallen by more than 34%. It has dropped 19.8% in the year-to-date period and it has crashed by 23.7% in the last three months.
Twitter’s bearish case from the Trefis Team
Analysts at Trefis recently revised down their price target on Twitter from $48.40 to $37.80 to underscore their bearish views on the prospects of the firm. The Trefis analysts are also citing poor user growth as a reason for the gloomy outlook on the stock. In their words, “the slow user base growth represents a key problem for the company, as acceleration in this metric is essential to ensure robust revenue growth in the future.”
In addition, the analysts believe that Twitter ads business is heading into troubled waters. The analysts say that Twitter’s ad load is at a low 1.3% compared to 5% on other mature social network platform such as Facebook. The analysts say, “it appears that currently there is oversupply (of ad space) which explains the decline in the average ad pricing. It is noteworthy that this trend is opposite to what Facebook is witnessing”.