Twitter was downgraded from Market Perform to Underperform late Thursday by RBC’s Mark Mahaney. Mahaney, who is one of the most-followed tech analysts on Wall Street, predicts a 25% drop in the stock. He cut his target to $14 from $17 because of low interest from advertisers.
Advertisers not a big fan of Twitter
Mahaney cited a recent survey in which 30% of the respondents of a group of advertising professionals in a range of marketing roles did not allocate any spending budgets to the micro-blogging giant — a 5% increase from the percentage in February.
One of three respondents said they are not planning to allocate any budget to Twitter, compared to 25% in February. Also the number of respondents allocating up to 10% of their online advertising budgets to Twitter dropped from 57% to 54%.
RBC found in its proprietary survey that more marketing departments are, for the very first time, planning to reduce their advertisement spending on the micro-blogging site rather than planning to increase it. About 26% of the respondents said they have plans to “modestly” or “significantly” raise their Twitter ad budget, compared to 28% who plan to decrease it.
Mahaney noted that the micro-blogging site ranked fifth of seven in terms of ROI to advertisers when ranked against its peers. The social media platform is behind Facebook, LinkedIn, Google, and YouTube, but it is ahead of AOL and Yahoo.
A company-specific problem
Twitter was already taking a hit from the underwhelming user growth, and now the RBC survey is another reason for concern. What is most shocking for Twitter is that this is a company-specific problem and not an industry-wide one. The surveyed people indicated that “online avenues continue to rise in importance as marketing channels.”
The analyst noted that their last four surveys and channel checks do not provide any convincing evidence that a particular number of advertisers will commit meaningful dollars to the micro-blogging giant.
“Twitter believes it can command premium ad pricing, but its dramatic ad revenue deceleration doesn’t support that.”
However, Mahaney still believes that Twitter is a “unique asset with a strong value proposition to core users.”
On Thursday, Twitter shares closed up 0.76% at $18.63. However, the stock continued to drop in the after-hours session as news of the downgrade came. In after-hours trading, the stock was down 3.6%. Year to date, the stock is down more than 16%, while in the last year, it is down more than 33%. Of the 41 analysts surveyed by Bloomberg, seven rate the stock a Buy, seven analysts give it a Sell, and the rest maintain a Hold rating.