Twitter has been making efforts to improve its user experience, but Wall Street doesn’t appear to be expecting success in this area. As a result, if management does execute well and can reaccelerate user growth, shares are likely to skyrocket. The microblogging platform’s entire future hangs on whether it can grow its user base significantly.
Twitter price target cut again
Twitter Inc (NYSE:TWTR) shares have been taking a beating since the company’s last earnings report, which brought another disappointment in the area of user growth. MKM Partners Managing Director Rob Sanderson has joined the chorus of others who have cut their price targets for the stock. He trimmed his target from $31 to $29 per share and maintained his Neutral rating in a report dated Nov. 16.
Chris Hohn the founder and manager of TCI Fund Management was the star speaker at this year's London Value Investor Conference, which took place on May 19th. The investor has earned himself a reputation for being one of the world's most successful hedge fund managers over the past few decades. TCI, which stands for The Read More
However, he has quite a broad valuation range on Twitter. He says in the case of success, the stock could be worth $100, but in the case of utter failure, it could fall to $10 a share. In other words, Twitter is a quadruple or nothing bet.
Advice for Twitter
In spite of his bearish view on Twitter, he does see significant potential—if management can execute. He believes the user experience must be simplified and that if the company can do this in the right way, it can broaden the appeal of its platform to the mass market. And if Twitter goes mainstream, the analyst believes Twitter could double its market capitalization and be in a position to double it yet again.
Sanderson appears to like the Moments feature, which Twitter launched early last month. He called it “the most ambitious attempt” the company has made so far to simplify the user experience while also showing off the best of its platform. He sees Moments as being the most important initiative over “the next several quarters,” even though management has more improvements on the way.
Too early to tell
Wall Street generally sees Twitter management’s tight-lipped response to questions about early responses to Moments as a huge negative. Sanderson says it’s just too early to tell what’s going on with it, however, adding that it takes time to gather and analyze data to see whether a totally new user experience is being accepted. Also the company will have to keep refining its platform throughout the process.
Anecdotally, the MKM analyst hasn’t noticed any improvements in content matching to his preferences. He is gathering and analyzing data on Twitter users currently and plans to release an update next week. It should be noted, however, that there is a small glimmer of hope for Twitter. It appears that the controversial decision to switch from “favorite” to “like” and replace the star icon with a heart has improved activity by about 6%.
Is time running out for Twitter?
Sanderson is worried that the clock is ticking on Twitter. He does think the microblogging platform has a “unique content story,” adding that “influencers” are the ones who will attract new users or repel them. The analyst also said that in the areas of celebrity, sports and music, many major influencers are choosing to reach out to larger audiences on Instagram, which makes things even harder for Twitter because of how much larger the audience is on the other platform.
He notes that breaking news and real-time events are still Twitter’s strong points but that competitors continue to target these areas. He sees Facebook’s Instant Articles feature as a serious threat for Twitter.
Overall, he says Twitter’s trajectory is “binary” over the next couple of years. He said either the microblogging platform will improve its user experiences and make itself relevant to the mainstream social media user, or its “fading grip on influencers leads to significant deterioration” of both its network and valuation.
Shares of Twitter edged upward by as much as 0.6% to $25.33 per share in late afternoon trading today.