The firm lowered longer-term expectations for revenue, profits, and users.
"We believe that Twitter has great long-term potential, but user-experience improvements are yet to be seen, the company operates in a fast-moving space and valuation still discounts significant growth," MKM Partners analysts said.
Other concerns include that user growth is slowed and engagement is dropping; other platforms such as Instagram and Snapchat are drawing more audiences; and management uncertainty is not a positive, according to the analyst note.
Fewer users, lower ARPU and negative margin leverage lead the firm to reduce 2020 EBITDA outlook to $3.8 billion from $4.9 billion, MKM Partners added.
Shares of Twitter are declining 0.52% to $28.90 in early morning trading on Tuesday.
Separately, TheStreet Ratings team rates TWITTER INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate TWITTER INC (TWTR) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- TWTR's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 35.36%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, TWITTER INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for TWITTER INC is currently very high, coming in at 81.05%. Regardless of TWTR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TWTR's net profit margin of -27.20% significantly underperformed when compared to the industry average.
- Net operating cash flow has increased to $89.98 million or 10.13% when compared to the same quarter last year. Despite an increase in cash flow, TWITTER INC's average is still marginally south of the industry average growth rate of 19.31%.
- Despite currently having a low debt-to-equity ratio of 0.38, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 9.50 is very high and demonstrates very strong liquidity.
- You can view the full analysis from the report here: TWTR Ratings Report