SunTrust: Twitter 'Brain Drain' is a Problem

Twitter is trading more than 2 percent lower in premarket activity following a note from SunTrust that Twitter Inc TWTR is at risk for a "brain drain." SunTrust analyst Bob Peck pointed to Friday's departure of Rishi Garg, the head of Twitter corporate development, as evidence of this pressure. Peck said that, though Garg's departure is not "material" by itself, the "large amount of private capital raised by startups increases the risk for Twitter," particularly during its CEO transition.

Not only is there a risk that more key personnel will leave the company, but Peck also said that it "may also be difficult to hire new key talent without a permanent CEO being in place." Therefore, it's important for the company to solidify current key talent, which Peck said includes President of Global Revenues and Product Adam Bain, SVP of Product Kevin Weil, VP of Global Media Katie Stanton and SVP of Engineering Alex Roetter.

Despite this short-term challenge, Peck said that the firm remains "very optimistic on the long term opportunity" in Twitter, "once the management team is stable." The firm cautioned that core monthly active users – a key metric for the company – may actually decline in Q2, keeping pressure on the stock in the near-term.

SunTrust rates Twitter as a Neutral, without specifying a price target. Year to date, the stock is down just 1.7 percent, though its price has fluctuated widely. In April, the stock was up by more than 40 percent on the year, before giving back all of those gains and some following the Q1 report. Since then, CEO Dick Costello resigned, without a named successor in place. Jack Dorsey will take the helm on July 1 on a temporary basis, at least at first.