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Square Lifted to Neutral, Twitter Reiterated Buy at Bank of America

Bank of America upgrades Square to neutral from underperform and reiterates Twitter at buy after Jack Dorsey stepped down at TWTR. The stocks are lower.
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Bank of America analysts on Tuesday upgraded Square  (SQ) - Get Square, Inc. Class A Report to neutral from underperform while reiterating their buy rating on Twitter  (TWTR) - Get Twitter, Inc. Report.

At last check shares of the the payment-tech company were down 2.3% while the microblogging website's shares were off 4.4%. Both are based in San Francisco.

The upgrade and reiteration come one day after Jack Dorsey stepped down as Twitter chief exeutive, with Parag Agrawal named as his successor. Dorsey is not leaving his CEO position at Square.

At the same time, Wedbush analyst Ygal Arounian lowered his price target on Twitter to $52 from $69 while keeping a neutral rating after Dorsey's departure announcement.

Bank of America analyst Jason Kupferberg also boosted his price target for Square to $221 from $210,

The "deceleration risk" of the company's Cash App business has been "more appropriately" priced in to the stock, he said. The stock now trades 25% below August highs and 15% since the company earlier this month reported a third-quarter earnings miss, the analyst said. 

Kupferberg added that he hesitated to take a more constructive stance on Square until visibility on the near-term and medium-term trajectory of the Cash App gross profit is clearer.

Separately, Bank of America analyst Justin Post reiterated his buy rating of Twitter.

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"It will likely take time for Mr. Agarwal to gain confidence from investors, but as a member of the tech team and then as [chief technology officer] he has contributed to increased product velocity over the past 3 years," Post said in a research note. 

"We also think investors would like more visibility for a senior leader at Twitter with an ad sales background to build confidence in the (direct response) opportunity."

Arounian said in an investor's note that "Dorsey's contributions to Twitter are undeniable and as a founder and CEO he continued to play a critical role, so his stepping down is no minor point in our view.

"The change at the top does raise some question marks around how the strategy may evolve from here, with so much focus recently on new product development."

The analyst said, however, that the timing of the move "does make sense to us, particularly with Mr. Dorsey's overwhelmingly busy schedule and growing focus on fintech/crypto."

"[Investors] were expecting/hoping for an external candidate to take over that could bring in to Twitter an outside perspective and experience that would help it reach its user growth and revenue targets," Arounian said, "with a focus on improving ad tech, particularly around direct response and ecommerce advertising, and features that could resonate with a greater amount of users."

That said, he added, "we are not surprised to see an internal candidate take over, with significant recent effort of late particularly around product and technology improvement velocity, including features like Topics, Spacing, Professional Profile/Shop Module." 

Agrawal's appointment, Arounian said, "does highlight the particular importance of improving the technology aspect of these initiatives in reaching targets and allows Twitter's top tech leader to implement his own vision in upgrading the platform's tech to drive growth."