RBC Capital Downgrades Twitter (TWTR) to Underperform

RBC Capital downgraded Twitter, Inc. (NYSE: TWTR) from Sector Perform to Underperform with a price target of $14.00 (from $17.00).

Analyst Mark Mahaney commented, "This change is based on our belief that Twitter’s value proposition to advertisers could be waning, based on our recent advertiser survey data. We note that we still believe Twitter is a unique asset with a strong value proposition to core users."

The analyst listed the following data points on TWTR from a survey of 1,100 advertising professionals:

• 26% of respondents plan to “significantly” or “modestly” increase their Twitter ad spend vs. 28% who intend to decrease – this is the weakest result we have seen and the first time we have seen a negative skew towards spending.
• 30% of our survey respondents do not allocate any budget to the Twitter platform, up from 25% in February. And the % who are committing 1%-10% (an experimental level, perhaps) of their Online market budget with Twitter decreased to 54% from 57% last time. Further, we found response rates to bigger Twitter advertising commitments (11% or greater) to be somewhat low, and decreased slightly to 16% from 17% in February and 18% last year.
• Only 24% of respondents believe their ROI has improved on the platform versus 21% who think it declined (a negative move from the 29% vs. 21% split seen earlier this year)
• When ranked against its peers, Twitter ranked 5th of 7 in terms of ROI to advertisers, behind Google, Facebook, YouTube and LinkedIn, but ahead of Yahoo and AOL

Mahaney's broad concerns on TWTR are: 1) It’s not clear when/if product/UI changes can stabilize or reaccelerate User & Usage. 2) Channel checks and our last 4 surveys (and particularly our most recent referenced above) don’t provide convincing evidence that a substantial number of advertisers will commit meaningful $s to TWTR.

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 $18.49 yesterday.

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