Is Twitter (TWTR) The Next Zynga?; Stifel Downgrades to 'Sell'

(Updated - February 2, 2016 10:58 AM EST)

• Twitter Downgraded to Sell at Stifel

Stifel analyst Scott W. Devitt doesn't think Twitter's (NYSE: TWTR) large number of users alone is enough to support shares if business slows, and in his view MAU growth is at risk due to lack of innovation and a limited sense of urgency. Earlier Stifel cut its rating on the stock to Sell with a price target of $14.

Devitt also compared Twitter to several stocks with depressed prices, including Zynga.

"Twitter ended 3Q:15 with 320 monthly active users (MAUs), which some suggest is a significant figure and one of the factors that makes Twitter a strategic asset. Yet, Yahoo! still reports 1B MAUs across its network and carries a much lower implied market value for its core business," said Devitt. "In addition, AOL’s final public disclosure in 1Q:15 prior to its acquisition by Verizon still showed nearly 200M unique visitors."

The analyst continued, "If Twitter is in the early stages of following a similar path to ex-growth as AOL and Yahoo! experienced before it, as seems to be the case, then there is likely more downside for TWTR common stock."

Devitt added, "More recently, Groupon and Zynga were notable Internet companies that quickly rose to prominence followed by a rapid decline in their share prices. Although these companies are not at Twitter’s scale, both still have ~50mm 'users' and once had many more. We are materially lowering our forward estimates for Twitter as we think the company will be challenged to reach its near- and long-term financial expectations given its current usage trajectory."

Devitt presented a number of slides that showed:

• "Twitter’s monthly active user growth continues to slow and is at risk of turning negative in 2016 due to a lack of product innovation and limited sense of urgency.
• Facebook continues to generate over 2x as much advertising revenue per U.S. MAU as Twitter.
• Facebook users spend 10x as much time on the site as Twitter’s.
• When adjusting for time spent, Twitter continues to monetize its users at 4x-5x the rate of Facebook today with less than 5% of the usage of Facebook.
• 320 million users seems like a formidable audience but it is not necessarily supportive of the thesis that there is value in TWTR shares if the business is about to enter ex-growth territory."

For an analyst ratings summary and ratings history on Twitter, Inc. click here. For more ratings news on Twitter, Inc. click here.

Shares of Twitter, Inc. closed at $17.91 yesterday.

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