The Twitter Downgrade Everyone Is Talking About

Shares of Twitter Inc TWTR dipped more than 1 percent early Friday morning, partly due to a downgrade by analysts at Jefferies. The firm's Brent Thill downgrades Twitter's stock rating from Buy to Hold with a price target slashed from $20 to $16 as there is a "clear winner" in the social media space, and it isn't Twitter.

While Twitter's social media platform does have a strong brand image, advertiser ROI has "dissipated" over the years, Thill commented in his downgrade note. In fact, a steady improvement in engagement from its core users hasn't translated into revenue growth for the company which implies "monetization is slipping" at a time when the digital advertising industry is growing at more than 15 percent.

Meanwhile, Twitter's desire to become a global leader in digital live video is "interesting" but the company is overshadowed by much larger peers, including Facebook Inc FB and Alphabet Inc GOOG GOOGL. Both Facebook and Alphabet "have much stronger digital video propositions for advertisers with much larger and more engaged user bases," the analyst added.

Moving forward, there are three areas in which Twitter needs to demonstrate improvement, including:

1. Increased adoption from advertisers which will translate to growing ARPU (average revenue per user).
2. A return to growing its user base in key regions like the U.S. and Europe.
3. Improvements in user engagement and matching revenue growth.

Bottom line, while recent management changes in the company could improve various aspects of Twitter's business going forward, the "clear winner" in the social media space is Facebook.

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