Analysts say the sell-off was triggered by concerns about the number of fake accounts the company is suspending on a daily basis, but they don’t necessarily agree on whether the dip is a long-term buying opportunity for investors.
The Washington Post reported on Friday that Twitter has been deleting more than 1 million fake accounts per day over the past two months in an effort to clean up its platform.The news spooked investors, who are concerned that removing all the fake accounts could negatively impact Twitter’s user metrics in the second quarter.
After initially dropping more than 9 percent on Monday morning, Twitter stock pared some of its losses when CFO Ned Segal assured investors in a tweet that most of the accounts being removed are less than 30 days old and are never included in user counts in the first place.
Bank of America analyst Justin Post says the account suspensions news is actually more of a positive for long-term Twitter investors than a negative, but the stock is still too expensive to buy at its current price.
“Early ad checks on Twitter have not suggested any inventory issues, so we aren’t anticipating an impact on 2Q revenues,” Post says.
In fact, he says investors should expect positive commentary on Twitter’s cleanup efforts in its second-quarter earnings call as the company tries to improve perception of its platform among advertisers.
Unfortunately, after the stock’s 82 percent year-to-date gain, Post says growth expectations are way too high.
“While we have underestimated the 2018 rebound in Twitter advertising revenue growth and do not expect recent account closures to impact 2Q revenues, we remain cautious on user growth trends versus social peers and would expect revenue growth to converge toward daily user growth over time,” Post says.
J.P. Morgan analyst Doug Anmuth says both users and advertisers should want a cleaner Twitter. “Overall, we believe there is confusion around these numbers, the correlation to reported metrics is misunderstood, and the sell-off is overdone,” Anmuth says. “We’d be taking advantage of the weakness and recommend buying Twitter shares.”
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