Twitter Inc isn’t be headed for massive growth under new CEO Jack Dorsey if Morgan Stanley is right. The Wall Street bank, in a report published on Wednesday morning said that shares in the firm were worth just $24 each. The analysts that authored the report rated the micro-blogging platform at Underweight. The bank previously had a $36 price target on Twitter shares.
Shares in the firm have been relatively buoyant in recent weeks as traders, including some big names, seem willing to buy into Mr. Dorsey’s dream of a more perfect Twitter. The firm has gained on large investments from Steve Ballmer, former CEO of Microsoft, and Prince Alaweed bin Talal of Saudi Arabia. Morgan Stanley is not following the logic of those big names.
Looking at Twitter’s future
Twitter has a single major problem. People simply aren’t joining the site. User growth has stalled and if Twitter is going to get anywhere with the stock market, it’s going to have to spur growth among its users. On October 27 Twitter will reveal its earnings numbers for the three months through September. User numbers will be a major factor in Wall Street’s reaction to that report.
Michael Pachter of Wedbush reckons that shares in the firm will drop right after it reveals those numbers. Twitter already said, when it revealed major job cuts across its work force, that it would come in at the high end of its guidance on sales and profits for the third quarter. It’s what the firm didn’t say in that note that will be the problem, at least in Mr. Pachter’s eyes.
Wall Street tries to figure Twitter out
Morgan Stanley isn’t the only research house that has had to really think about the way it values Twitter in recent months. A lot of firm’s following the social media stock have had to look at what they think of the long term.
Trip Chowdhry of Global Equities Research decided that the firm was just as dead as Yahoo. He reckons that growth-seeking capital is going to flow out of web-based social stocks in the coming years as new growth areas emerge on the market. In his view RoboCars and tech close to them will be a major draw.
Most of Wall Street isn’t quite willing to call for an end to the social boom just yet. The mean price target among the 33 analysts following the firm sits at $35. 9 analysts reckons that clients should Buy shares in Twitter, 7 peg them at Outperform, while the vast majority advise taking a wait-and-see approach by Holding onto the stock.
Just two research houses have an Underperform rating on shares in the firm, while there are no Sell ratings on the stock right now.
Mr. Pachter reckons that user numbers at Twitter for the third quarter “will be underwhelming and disappointing.” As the anxiety of that announcement creeps in, and well-named banks like Morgan Stanley advise against buying shares in the firm, stock may get volatile, and risk averse investors should likely turn the other way.