Analysts Predict Difficulties Ahead for Twitter

Twitter

Twitter (NYSE:TWTR) shares are down over 4 percent at the time of writing in afternoon trading on Monday after two analysts downgraded the stock and the site announced a new advertising strategy. According to research notes seen by Barron’s, Wells Fargo and SunTrust Robinson Humphries have both downgraded the stock, saying that Twitter will soon face difficulties in terms of generating revenue and the site’s current user engagement is leaving something to be desired.

Wells Fargo analysts cited data showing that only about half of Twitter’s monthly active users actually tweet, while the other half just use the microblogging site for reading. Those more passive users are much less valuable to advertisers, as they’re less likely to retweet companies’ tweets or follow company accounts.

“While we acknowledge that many ardent Twitter users are readers and not Tweeters (ourselves included), we nonetheless consider the ratio a potential liability for the simple reason that the retweet is arguably the most valuable engagement metric in the eyes of many advertisers. If this relationship continues, we believe marketer ROI could suffer,” Wells Fargo said in its note. 

SunTrust analyst Rob Peck called Twitter’s stock valuation “stretched,” as there have been no actually significant developments contributing the the stock’s 31.4 percent rise since it debuted on the NYSE in November. “We remain extremely positive on the long term opportunity for the company,” he wrote.

Meanwhile, Twitter is pushing ahead with further efforts to make money from its mobile app. On Monday the company announced in a blog post that it will now include promoted accounts in users’ timelines. Twitter cited a study showing that 72 percent of users say they are more likely to make a purchase from a company they follow on the microblogging site.

Now businesses can pay to have their tweets displayed in the timelines of user accounts viewed on mobile devices running on Apple’s (NASDAQ:AAPL) iOS or Google’s (NASDAQ:GOOG) Android operating systems. ”Our hope is this enhancement to Promoted Accounts will make it easier for businesses to connect with the 76 percent of our users who access Twitter on their mobile device, and help users connect with the brands they care most about,” the site said.

Follow Jacqueline on Twitter @Jacqui_WSCS

Don’t Miss: Why Is Google Acquiring an Army of Robots?