Twitter Analyst Downgrades Stock to "Sell," Says "Hope Is Not a Strategy"

Jack Dorsey - Getty - H 2016
Getty Images

Jack Dorsey - Getty - H 2016

Michael Nathanson cites advertiser fatigue and says new initiatives amount to "too little, too late."

MoffettNathanson analyst Michael Nathanson on Tuesday downgraded his rating on Twitter's stock to "sell" from "neutral" and cut his price target by $3 to $12, arguing in the title of the report that "Hope Is Not a Strategy."

He cited "advertiser fatigue" as one key driver of his downgrade of the social media stock. "Twitter is now not only dealing with user fatigue, but advertiser fatigue as well," Nathanson wrote. "Following triple-digit growth only two and a half years ago, Twitter is now growing in line with Google on a revenue base that is about 1/35th the size, indicating both a lack of perceived value and increasing client choices."

He also argued that the company was facing a "harder road ahead" amid increasing competition with Instagram, Snapchat, Pinterest, Facebook and YouTube. "Facebook continues to co-opt the features most unique to Twitter through the additions of Trending Topics, Instant Articles and live video," the analyst said.

And Nathanson concluded that Twitter's new initiatives amount to "too little, too late." While initiatives like the monetization of logged-out users and courting direct response advertisers through partnerships could lead to "some stabilization and possibly upside in late 2016/early 2017," he said that "the small likelihood of a meaningful payoff doesn’t justify owning the stock here."

Nathanson said his financial projections for Twitter, led by CEO Jack Dorsey, are now "significantly" below Wall Street consensus forecasts for 2016-2018.

Overall, he said, "Twitter deserves a significant discount to the internet sector ... driven by a rapid deceleration in revenue growth and what we believe is a much greater risk profile."

The report came out on the day that saw Twitter make it easier to say more in 140 characters via several changes to what counts toward that limit in tweets.

Twitter shares on Tuesday closed down 2.6 percent at $14.03. Over the past year, the stock has traded between $13.73 and $38.82.