MKM Cuts Twitter's Target To $14, Bearish On Lack Of Management Focus On Moments

MKM Partners’ Rob Sanderson believes Twitter Inc TWTR still has mass-market potential, although there is significant execution risk.

Sanderson maintains a Neutral rating on the company, while lowering the price target from $18 to $14.

Primary Concerns

“Inability to improve the user experience enough to drive a user growth rebound, loss of influencers in key categories and risk of network collapse remain our largest concerns,” the analyst mentioned.

Although Twitter is currently trading at a discount to growth, Sanderson believes that investor skepticism is justified, given that revenue growth has meaningfully slowed, while expectations continue to be revised down.

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“We think only significant product improvements could re-ignite growth, which was virtually stalled domestically and has slowed to a crawl internationally,” Sanderson stated.

Sanderson also pointed out that users have been complaining for years regarding the ambiguity of Twitter’s conversation module. However, management intends to roll out improvements on this front later in 2016.

Some Improving Metrics

Management also highlighted improving metrics, such as a 48 percent increase in follows, 208 percent growth in ad engagement, 20 percent increase in videos viewed and 50 percent increase in direct messages.

In addition, revamping the logged-out mobile experience led to one percent growth in time on site, with 3 percent more users converting to active logged-in users.

“According to management, non-logged-in visitors and those who view embedded tweets on third party sites could be worth as much as $1.3 billion a year,” the analyst added.