Shares of Twitter (TWTR) - Get Report and Facebook (FB) - Get Report were downgraded this morning to Neutral-equivalent ratings by two separate research firms but on similar concerns. BTIG analyst Rich Greenfield and Raymond James' Aaron Kessler told investors that they believe Wall Street's expectations for the social media companies are too "aggressive" and cautioned that the risk/reward has become less attractive.
BAR SET TOO HIGH FOR FACEBOOK: In a note to investors this morning, BTIG's Greenfield downgraded Facebook to Neutral from Buy and removed his prior price target on the stock. While Greenfield acknowledged that Facebook remains one of the only ways to play the shift of legacy media ad dollars to mobile and its advertising growth rate remains "staggeringly" high, he also cautioned that investors' expectations are simply too "aggressive," rising "dramatically" over the past year and leaving the bar set "simply too high." With Facebook's stock now over $120, exceeding the $117 price target the analyst had set one year ago this week, he believes the risk/reward is no longer compelling.
TWITTER ESTIMATES COULD PROVE AGGRESSIVE: Raymond James analyst Aaron Kessler separately downgraded Twitter to Market Perform from Outperform this morning, telling investors in his own research note that he believes the risk/reward is more balanced with the shares near $19. His recent advertising channel checks indicated that Twitter spend in the second quarter was flat to slightly down with revenues likely coming in line with the company's guidance. Moreover, the same checks suggested that Facebook's Instagram monetization could be a near-term negative for Twitter revenues. Additionally, consensus revenue estimates for the company's third quarter "could prove aggressive," Kessler contended, noting that he does not expect Twitter to guide "aggressively" for the upcoming quarter given recent revenue softness. Nonetheless, the analyst said he remains optimistic on the company's ad and user initiatives, although it will take time for these to lead to stronger revenue growth and increased monetization.
PRICE ACTION: In morning trading, shares of Facebook are fractionally up to $120.72, while Twitter's stock has dropped almost 1.5% to $18.14 per share.
Reporting by Jessica de Sa-Mota.
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