Twitter Inc CEO May Not Be Able To Make Required Changes: Citigroup

Twitter Inc CEO May Not Be Able To Make Required Changes: Citigroup
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Twitter appointed co-founder Jack Dorsey as the new CEO to push the struggling company onto the growth track. But Citigroup analyst Mark May believes he may not be able to solve the problems facing the company. Citigroup analysts maintain a Neutral rating on Twitter.

Dorsey may make the required changes

On Wednesday, Speaking on CNBC’s “Squawk on the Street,” May said, “I think that they have a plan. The problem is it might require a pretty meaningful change to the core experience for Twitter, and that may be something that a founder is unwilling to make.”

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May believes that Moments, which is the first major product launched after Dorsey took over as the CEO, has been a “bit of a disappointment.” Moments or Project Lightning was launched this month to make it easier for new users to find relevant stories.

Twitter shares were down sharply on Wednesday even after the micro-blogging firm beat consensus estimates for both profit and revenue. The fact that it added just 3 million monthly active users in the last quarter was, however, reason for investor dismay.

For the third-quarter, Twitter reported a revenue of $569 million, while the earnings came in at 10 cents per share, double the consensus estimates of the 5 cent per share. The micro-blogging firm added almost 4 million users, including SMS users. Analysts expected the company to add 5 to 7 million users.

Twitter stock – a good entry point

On the other hand, Scott Devitt at Stifel Nicolaus upgraded the stock to Buy with a price target of $34. Devitt sees Dorsey’s appointment as the first step towards “improved product and repaired franchise.”

Twitter is changing the “underlying architecture of the business and product portfolio,” and has revamped its leadership with Dorsey as CEO, and by naming former Google executive Omid Kordestani as the chairman, Devitt told CNBC on Wednesday.

Since Twitter’s stock is price is ‘depressed,’ suggesting low expectations of change, “we thought it was an interesting entry point,” Devitt said. The analyst wisely said it will be shortsighted to expect any change in the period between Dorsey’s appointment and the earnings report. Going forward, Devitt notes that the expectations will further decline, and comparisons to the previous quarters will get easier.

On Wednesday, Twitter shares closed down 1.53% at $30.86. Year to date, the stock is down almost 14%, while in the last month, it is up over 22%.

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