Twitter Inc (NYSE: TWTR)
Twitter has been having a rough time in the market for quite some time, and for good reason. The company simply can’t seem to get user growth up to par. However, the stock is climbing today as the result of an analyst upgrade. Don’t let it fool you! Analysts can be wrong too. Today, we’ll talk about the analyst upgrade and why I still have little faith in TWTR as well as its ability to produce long-run gains for investors. So, let’s get right to it…
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Pivotal Research Group Increases TWTR Target Price
Early today, it was announced that Pivotal Research Group has made the decision to increase the target price on TWTR from $32 to $39, maintaining a buy rating on the stock. The analyst firm stated that the increase in target price was “largely driven by changes in the costs of capital we use to value companies across our coverage universe…” The firm believes that the declines we’ve seen on TWTR are largely driven by the overall investor distrust of the company. In a statement, Pivotal had the following to offer:
“We have long argued that Twitter is a niche platform that has essentially no direct competition in most countries around the world. From a marketer’s perspective, so long as it remains unique and so long as Twitter can develop ad products that allow marketers to spend money on the platform, the company can continue to grow above the pace at which global digital advertising is expanding…”
I’m Calling BS!!!!
As mentioned above, it’s not always the best idea to trust what analysts have to say. After all, no analyst is ever 100% correct and the chance that Pivotal is hitting the nail on the head here is slim to none. It seems as though the analyst firm is forgetting that in order for advertisers to want to spend money, there have to be users to advertise to. For quite some time, TWTR has struggled with low user growth. In fact, growth on the platform is nonexistent at this point. Now, the company is seeing large declines in daily active users, creating more of a headache.
Let’s say that TWTR does follow the advise of Pivotal and continues creating more ad products. More ad products mean that the users will see more ads and, ultimately, there are few things that will turn users off as quickly as excessive advertising! The thing Twitter needs to do is focus on the user, not the advertiser. If the company can get users rolling again, advertisers will follow and it will be able to grow. However, Twitter’s fundamental lack of effort in that area suggests that this may never happen!
What We Can Expect To See From Twitter Moving Forward
In the short term, it’s likely that we will see more gains on TWTR as investors remain excited about the note offered by Pivotal this morning. However, that doesn’t mean that Twitter is a good long-term investment. In fact, in the long run, I’m expecting to see more declines out of the company. Of course, the platform is too big to fail completely. However, at the current moment, I wouldn’t value TWTR at a penny over $10 per share. Over time, I’m expecting that this is about where it will end up. The bottom line is that TWTR needs to focus on user growth. Until this happens, growth in the company isn’t likely to be as strong as Pivotal or the other bulls on the stock believe.
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What Do You Think?
Where do you think TWTR is headed moving forward and why? Let us know your opinion in the comments below!
[Image Courtesy of Pixabay]