Twitter Falls After Downgrade, Yahoo! Shares Rise

Periscope, Vine and other initiatives have failed to light a spark at Twitter.
By Chris Nolter ,

A downgrade from a prominent tech analyst deflated shares of Twitter (TWTR) - Get Report Monday, though Yahoo! (YHOO)  withstood a ratings reduction.

SunTrust Robinson Humphrey analyst Bob Peck lowered his Twitter rating from buy to neutral, noting that a series of new initiatives have not jump-started the company and suggested that Alphabet (GOOG) - Get Report or Facebook (FB) - Get Report  is unlikely to take Twitter off shareholders' hands in the near term.

Shares of the social media company were down by 1.3% to $17.85 Monday afternoon, below Peck's target of $18.

Potential catalysts such as live video app Periscope, short video app Vine, curated "moments" that combine tweets and other media on trending topics, and a new approach to presenting tweets while a user was logged off have failed to light a spark, Peck wrote.  Meanwhile, SnapChat is eroding the Twitterverse.

Jim Cramer, TheStreet's founder and manager of the Action Alerts PLUS portfolio, which owns Twitter, credited Peck's analysis but suggested that the analyst was overly negative on the stock.

M&A may be "inevitable" if Twitter's problems persist, Peck suggested, but a sale is unlikely this year. Jack Dorsey has been CEO for less than a year and the company has retooled its board, reducing the outlook for a near-term exit. Dorsey can pitch investors on his progress during the company's July 26 earnings call.

The fate of Yahoo!'s core Internet business could be decided in as soon as a week. Marissa Mayer could announce a sale on July 18, when the Yahoo! CEO streams a second-quarter earnings presentation from the company's Sunnyvale, Calif., studio.

Peck anticipates a positive outcome from Yahoo's auction of its core business and its patent portfolio, but suggested that investors could sell the stock following the news.

Even if the auction has a "positive result" such as a $6 billion sale, the process has been highly publicized and a sale will hardly come as surprise. The sale will have less of an effect on Yahoo's valuation than monetizing the company's holdings in Alibaba (BABA) - Get Report and Yahoo! Japan.

Moreover, a sale to Verizon (VZ) - Get Report or AT&T (T) - Get Report could come with conditions related to issues such as contract uncertainty with search engine developer Mozilla, Peck noted.

As earnings season approaches, RBC Capital Markets analyst Mark Mahany lists Yahoo! as one of the highest-risks in the Internet sector, along with TripAdvisor (TRIP) - Get Report and  Expedia (EXPE) - Get Report .

"Big  picture,  we  remain  concerned  that emphatically strong growth in Facebook's and Google's ad platforms and the rapid rise of  Programmatic  ad  buying  are  all  creating  intensified  headwinds  for  (Yahoo!)," Mahany wrote.

Yahoo! stock was up nearly 1% to $38.11 less than an hour before the market's close on Monday. Peck lowered his target from $44 to $42.

Twitter, Alphabet and Facebook are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells TWTR, GOOGL or FB? Learn more now.

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