Twitter Inc (ticker: TWTR) may have delivered some much-needed user growth in the first quarter, but the stock remains a risky bet for long-term investors. According to a new report by Aegis Capital analyst Victor Anthony, Twitter’s road to success is getting narrower by the day in the face of growing competition from Facebook (FB) Alphabet (GOOG, GOOGL) and Snap (SNAP).
Twitter’s growth struggles are common knowledge among investors, but Aegis’ user growth checks suggest Twitter will report incrementally positive growth user in the most recent quarter.
Anthony says Twitter’s first-quarter user growth offers “a glimmer of hope” but is “not significant enough to warrant a shift back in ad spend by advertisers.”
Twitter stock is down 64 percent in the past three years and is trading near all-time lows. Despite the sell-off, Anthony says Twitter stock still isn’t a bargain.
“While we believe the product itself has improved with better Tweet relevance, personalization, video and artificial intelligence, we still see no clear reason to own the equity and see more downside risks to the stock due to the ad struggles,” Anthony says.
Twitter is still struggling to address the fundamental problem that advertisers are simply getting a better return on their investment by buying ads on other social media platforms. Not surprisingly, Twitter has been losing market share to its competitors, a trend that Aegis expects will continue.
Twitter investors are growing used to trends heading in the wrong direction. In addition to declining market share and share price, Piper Jaffray recently reported that Twitter’s popularity among teen users has declined for the second consecutive year. The firm’s bi-annual teen survey revealed the percentage of teens that consider Twitter their favorite social media platform has fallen from 21 percent in 2015 to only 11 percent in 2017. Snapchat (39 percent) and Facebook’s Instagram (23 percent) remain the top social media picks among teens.
Until Twitter demonstrates that it can compete among the next generation of social media platforms, Anthony expects…
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