Twitter shares are now off by nearly 8% from Friday’s opening price after they bounced on Monday. The stock declined by as much as 3.89% to $23.95 per share in afternoon trading today, approaching Monday’s low point of around $23.73.
Today’s share price decline could be due to a couple of factors. We found out today that Twitter is losing its design chief, who has been behind the most recent changes like the addition of the Moments feature. Also Evercore ISI analyst Ken Sena and his team said they’ve cut their price target for the micro-blogging company from $25 to $22 per share and maintain their Hold rating.
Twitter’s traffic trends remain soft
In a report dated Dec. 15, the Evercore ISI team released data from their recent surveys, combining it with traffic data from comScore, which also came out this week. They found that Twitter had “relatively weak” traffic trends in October and November and that Twitter is still losing share to competitors that are growing more quickly like Instagram and Snapchat.
Walter Schloss’s Wisdom
Walter Schloss was a legendary value investor and some might call him the last traditional value investor. Schloss was an old school value investor. He looked for bargains on a price-to-book basis, preferring stocks that were trading at 52-weeks lows over other opportunities. He spent several years working with Benjamin Graham before moving off to Read More
Also engagement on the micro-blogging platform is still challenged as the number of total minutes spent on it through November is still showing declines in the mid-single digits in the U.S.
Meanwhile, competitors post gains in the double digits off much larger user basis. The Evercore team reports that Instagram has grown 150%, while Snapchat has grown 50%.
These trends come in spite of Twitter’s recent product changes, like the addition of Moments and the Google partnership. Based on the November data, the Evercore team believes that Wall Street’s user estimate for the December quarter might again be too high at 325 million, which includes 5 million net adds.
In the third quarter, Twitter recorded 4 million net user adds. Sena and his team are estimating 323 million Twitter users for the fourth quarter.
Marketers prefer scale, which Twitter lacks
The analyst also found in their recent survey that markets are leaning toward digital ad platforms with greater scale. He sees signs of a sharp deceleration in core ad growth at Twitter, which he believes will fall into the 20% range year over year growth during the fourth quarter.
The Evercore team came to this conclusion based on Twitter’s guidance and the new off-network disclosure and them “applying an assumption for the amount of off-network revenues that occur domestically.” In last year’s fourth quarter, Twitter recorded a 66% increase in core revenue growth.
They added that although Twitter’s off-network revenues are growing strongly, they believe that the traffic acquisition costs will end up having “a meaningful impact” on Twitter’s margin leverage.
Sena and his team’s believe Twitter will also miss on EBITDA for the fourth quarter, as he thinks Wall Street’s estimate is too high by approximately 15%.
All graphs in this article are courtesy Evercore ISI.