After surging by more than 10% yesterday on an upgrade from Nomura analysts, Twitter Inc (NYSE:TWTR) is edging upward again in the wake of another upgrade, this time from Cantor Fitzgerald. Analyst Youssef Squali upgraded the micro-blogging company from Buy to Hold, offering comments that were very similar to those made by Nomura analyst Anthony DiClemente on Wednesday.
Twitter is niche… and that’s OK
DiClemente’s point on Wednesday was that Wall Street was beginning to accept the that Twitter Inc (NYSE:TWTR) is likely a niche social network that will never rival Facebook Inc (NASDAQ:FB) in size. Like him, Squali doesn’t think it’s a big deal that Twitter has just 255 million users, compared to Facebook’s more than a billion. He thinks the micro-blogging company will be able to “show substantial revenue growth / margin expansion and generate meaningful returns to shareholders without having to mirror FB’s model / approach its size.”
Money, not users
The Cantor Fitzgerald analyst also pointed out that more ad dollars are shifting over to social platforms, and Twitter Inc (NYSE:TWTR) is capturing an increasing share of those shifting dollars. He pointed to the two-year deal Twitter struck with Omnicom Group Inc. (NYSE:OMC), which is worth $230 million.
Squali said Wall Street should emphasize monetization more than user growth because when viewed in isolation, Twitter Inc. (NYSE:TWTR)’s first quarter engagement metrics were “impressive,” having risen by double digits year over year. However, he said they look bad when compared to those of the much bigger and more mature Facebook Inc (NASDAQ:FB)
Twitter rallies this week
So far this week, shares of Twitter Inc (NYSE:TWTR) have risen by about 14%, and MarketWatch reports that it is heading for its largest weekly gain since December, which wasn’t long after Twitter’s initial public offering. In spite of this week’s gains, however, Twitter stock still remains down 45% so far this year, with over 36% of its value falling off in just the last three months alone.
Aside from concerns about a deceleration in user growth rate, hundreds of millions of additional Twitter Inc (NYSE:TWTR) shares owned by insiders unlocked and became available for trade. That did not help the declining share price at all.