No long-term cheer for Twitter stock

Why CEO change won't lift Twitter shares
Why CEO change won't lift Twitter shares   

Twitter showing CEO Dick Costolo the door may have been long anticipated, but it's not likely to help the stock much, traders warn.

"The question marks around strategy, user growth, and new innovations remain. My preference is to sit on the sidelines and learn a little more. There are many, if not more uncertainties today than there were yesterday," Bob Doll, chief equity strategist and senior portfolio manager at Nuveen Asset Management, told CNBC on Friday.

Costolo is due to depart on July 1, the company announced on Thursday, fulfilling the wish of many investors who have long called for a management shakeup amid a lack of profits and poor user growth.

For the first three months of the year, the firm delivered its weakest quarterly revenue growth since going public, while net losses widened 23 percent on year to $162 million. Its stock price has underperformed many of its social media peers; year-to-date, it's flat in negative territory, compared with a 5 percent gain for Facebook.

Robert Pavlik, chief market strategist at Boston Private Wealth, is also refraining from buying the stock.

"I want to see what their strategy is going forward. There have been some comments that they're not going to change their strategy but they have to start monetizing users. Wall Street is getting frustrated, the chairman of the board is feeling the pressure and that's the reason for the CEO change."

Meanwhile, the firm continues to lose monthly active users, reporting a loss of 4 million during the first quarter.

"The company has yet to effectively address a steep engagement fall-off among lightly tethered users - a challenge that product changes to date have been unable to reverse," Wells Fargo said in a note on Thursday.

Apple Watch Twitter app.
Adam Jeffery | CNBC
Apple Watch Twitter app.

Where is the stock going?

Twitter shares jumped almost 4 percent to $37.24 in after-hours trading, but are unlikely to move much from the $36 level they closed near going forward, according to analysts.

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Macquarie maintained its neutral rating, expecting continued under-performance until Twitter improves execution against its current strategy, or institutes a new vision.

"We have yet to recommend buying TWTR, and nothing we heard today makes us more inclined to do so," analysts said in a note.

Meanwhile, Wells Fargo lowered its valuation range to $36 from $42, citing a long period of uncertainty and the risk of disappointing third-quarter results.

"Strongly worded conviction from Jack Dorsey and Dick Costolo regarding merits of current strategic path suggests to us recruitment of a new CEO could be lengthy... Simply put, a change to strategy over the next six months appears unlikely."

RBC Capital is predicting a downside scenario of $34 per share if Twitter fails to narrow its monetization gap and continues to see decelerating user growth.

So, what should Dorsey do? Pavlik recommends bringing somebody from Facebook to install as CEO. Not only will that solidify confidence, but Facebook is attracting users, and lessons can be learnt from that, he said.

Programming note: Costolo and Dorsey will appear on CNBC's "Squawk on the Street" at 10 a.m. EDT Friday.