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Twitter shares fall after Jefferies downgrades, calling Facebook 'clear winner' in social

Key Points
  • Jefferies equity analysts downgraded Twitter on the view that Facebook is the "clear winner" in social media.
  • Although Twitter has tried to improve its attractiveness to advertisers through initiatives like live video, the analysts viewed Facebook and Google's businesses in the area as "stronger" propositions for advertisers.
  • However, Jefferies didn't cut its view on Twitter to sell because "recent management changes could help improve the declining [average revenue per user] in the near term."
Jack Dorsey, co-founder and chief executive officer of Twitter Inc.
David Paul Morris | Bloomberg | Getty Images

Jefferies downgraded Twitter shares to hold from buy Thursday based on the view that there are "better social plays elsewhere."

"TWTR's global platform has broad user engagement, but monetization is slipping," Brent Thill and a team of equity analysts said in a note after the close. "In social we see a clear winner in FB."

Shares closed 1.4 percent lower. shares fell nearly 0.9 percent amid a narrowly mixed U.S. market close.

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"TWTR's push to be a digital live video provider is interesting, but we note that bigger competitors such as FB & GOOGL have much stronger digital video propositions for advertisers with much larger and more engaged user bases, deeper granular data for targeting, and proven return on advertiser investment," Thill said.

Twitter has "seen a steady improvement in engagement from its core users, but has yet to translate this into revenue growth," Thill said, noting that advertising revenues in the first half of the year for Twitter are down 6 percent versus the 15 percent gain for the industry.

Twitter year-to-date performance

Thill and his team also cut their price target on Twitter to $16 from $20.

Twitter shares closed 0.4 percent lower at $16.89 Thursday. The stock had shot up more than 40 percent from a 52-week low in April to a more than 9-month high in July amid reports of improved advertising revenues.

However, shares plunged in late July after the social media company's second-quarter earnings report disappointed in the number of new users and showed an 8 percent decline in advertising revenue to $489 million.

That said, the Jefferies analysts still gave Twitter the benefit of the doubt.

Thill said he didn't downgrade the stock to sell because of its recovery in the last two years.

"We believe recent management changes could help improve the declining [average revenue per user] in the near term," he said. "We will pay close attention to advertiser sentiment over coming months and effectiveness of live video."

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