Cowen downgrades Twitter to underperform after revenue miss, advises clients to stay away

Published Thu, Feb 9 20174:05 PM ESTUpdated Thu, Feb 9 20175:59 PM EST

Cowen on Thursday downgraded Twitter to the equivalent of a sell rating, advising clients to avoid the stock after the social media platform reported weak revenue and lowered its guidance. "We are moving to an underperform rating (from market perform) and a $12 target price (from $15) given sharply lower near-term forecasts, rising competitive pressures and strategic uncertainty amid a product transition," equity analyst John Blackledge wrote in a research note. Twitter shares plunged more than 12 percent Thursday in reaction to what Cowen analysts call "worrisome" advertising revenue and earnings trends ahead. "[First-quarter] guidance is worrisome in our view and suggests a reset as revenue/EBITDA [earnings before interest, taxes, depreciation and amortization] were over 20 percent/50 percent below pre-print estimates," Blackledge wrote. Cowen says Twitter will likely continue to struggle to gain advertising dollars as agencies turn to bigger players such as Facebook. "Our survey of ~50 US Ad Buyers ranked TWTR well behind FB and Instagram in importance and suggested no pickup in share moving forward," Blackledge wrote. Despite a pickup in active daily users over the past three quarters, Cowen says advertising "budgets are going away for Twitter." Given the bleak prospects for the micro-blogging platform, the likelihood of an acquisition by a larger player seems to have dissipated. "While an M & A scenario is a risk to the call, we do not find valuation compelling at current levels and we see the emergence of a white knight as a remote possibility," Blackledge said. Since reaching a 52-week high in October on M & A rumors, shares of Twitter have retreated 35 percent. Twitter, 1 year Source: FactSet As a result, the investment firm lowered its full-year outlook and advised clients to remain "sellers of the stock." "For FY17 [fiscal 2017], we lowered our revenue and EBITDA estimates 17 percent and 41 percent, respectively, with similar to worse cuts longer term," Blackledge wrote. Cowen's new 12-month price target of $12 implies a drop of about 27 percent from here.

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Cowen on Thursday downgraded Twitter to the equivalent of a sell rating, advising clients to avoid the stock after the social media platform reported weak revenue and lowered its guidance.

"We are moving to an underperform rating (from market perform) and a $12 target price (from $15) given sharply lower near-term forecasts, rising competitive pressures and strategic uncertainty amid a product transition," equity analyst John Blackledge wrote in a research note.

Twitter shares plunged more than 12 percent Thursday in reaction to what Cowen analysts call "worrisome" advertising revenue and earnings trends ahead.