Investors may be eager for a Twitter sale, but analysts warning buyers to beware
Investors may have been NEW YOR K looking forward to the potential of a Twitter Inc. sale, but at least one analyst is saying everyone’s in for disappointment.
Oppenheimer Holdings Inc. analyst Jason Helfstein said in a note he was downgrading the stock to underperform, following the 21 per cent boost to its share price delivered by reports of a potential sale.
“Based on slowing user growth, poor product implementation (and) execution, decreasing user engagement, inferior advertising technology, platform safety issues and strong competition,” he established a new price target of US$17, compared to a few cents north of US$22, where the stock trades.
While a buyer could get their hands on valuable data, the acquisition’s not without risks. According to an RBC Capital Markets analysis led by Ross MacMillan, if Salesforce.com Inc. were to buy Twitter, the deal “would be dilutive and could create uncertainty around Salesforce’ strategy and capital discipline.” The analysis further questioned the benefits of buying the firm as opposed to partnering, as the two companies have for a number of years.
Some of those headaches stream from a existential question that still dogs Twitter 10 years after it went live: its inability to decide whether it’s a media or tech company. According to Helfstein, the firm’s attempts to compete with traditional media have been disappointing given the inability of major news events to rally tweeters.
“Based on data from Google Trends, the Olympics did not cause an increase in engagement. This is discouraging, as Twitter would appear to be well positioned to take advantage of this type of event, as a real-time social platform,” he said, adding that its streaming deal with the NFL was also a bit of a miss, averaging 243,000 viewers; about 1.5 per cent of live TV.
“We believe that Twitter is overvalued compared to its peers, and is already discounting a takeout premium,” he concludes.
Twitter has seven buy ratings, 26 hold ratings and eight sell ratings, with a consensus price target that trails Helfstein’s revised mark. The stock has an average 12-month target of US$16.54, according to data compiled by Bloomberg.