Twitter Stock Decline Latest Ill As New Ads Cannibalize Older Ones
Twitter ( TWTR ) collected a wave of price-target cuts and ratings downgrades on Wednesday, and its stock continued to fall, after the microblog late Tuesday posted a Q1 revenue miss and gave Q2 revenue guidance well below expectations. Twitter was down more than 15% in afternoon trading in the stock market today , near 15 and at a two-month low. The company said in a letter to shareholders that its revenue “came in at the low end of our guidance range because brand marketers did not increase spend as quickly as expected in the first quarter.” The weak demand among brand advertisers also resulted from newer advertising types, mainly video, cannibalizing the company’s legacy “promoted Tweet” ads. The continued slowdown in Twitter usage has come about despite a series of new features it rolled out last year, including video tool Periscope and Moments. The company said monthly active users rose to 310 million, up 3% year over year and up from 305 million in Q4. But that marked the ninth straight quarter of slowing year-over-year user growth. Twitter posted user growth of 18% year over year in Q1 2015. Still, the 310 million edged the midpoint of analysts’ views that Twitter’s user tally would be 307 million to 310 million. Pivotal Research Group cut its price target on Twitter stock to 27 from 39 on Wednesday. But the investment bank said its long-term view was positive. “Despite the slowdown in brand-related spending cited during the conference call, Twitter remains the fourth-most-important player in digital advertising outside of China (after Alphabet ( GOOGL )-owned Google, Facebook ( FB ) and Verizon ( VZ )‘s AOL). This position is unlikely to be altered any time soon,” wrote Pivotal analyst Brian Wieser in an industry note. Wieser lowered his estimated for 2016 revenue growth to 26% from 33%, but said “we continue to expect that the platform retains its current level of importance to consumers and advertisers alike.” Twitter’s Promoted Tweets Victimized By Other Twitter Ads Twitter’s higher-performing ad products — including auto-play video, app installs and direct response — “attracted greater demand than that of legacy Promoted Tweets, thereby cannibalizing previously housed revenue,” said Monness Crespi analyst James Cakmak in a Wednesday report. Cakmak said potential pluses for Twitter that could bring strength in the second half of the year include the microblog’s Web streaming deal recently reached with the National Football League. “This deal and perhaps more content partnerships can help serve as a user accelerant, assuming the product experience is right,” said Cakmak. This month, Twitter expanded its three-year relationship with the NFL to include streaming 10 “Thursday Night Football” games, as well as pregame analysis shows, postgame highlight shows and behind-the-scenes Periscope broadcasts next season. Cakmak added that search leader “Google’s dependence on Twitter content” is another positive. “Twitter makes Google stay relevant in real-time search, giving them every incentive to help the company succeed. This is a critical alliance vs. Facebook,” he wrote. But Monness Crespi cut its price target on Twitter stock to 22 to 25. The real reason advertisers do not want to spend more on Twitter is because “its focus remains too narrow,” said Edison Investment Research analyst Richard Windsor in an industry note Wednesday. “To turn this around, Twitter needs to find something to encourage users to spend more time within its properties and break out of being a news broadcaster.”