Twitter has been experiencing a lot of engagement on its microblogging platform but the engagement does not seem to be correlating with the revenue according to Jefferies research firm.
The social media company’s stock tanked by about 1.3 percent during pre-market trading after Brent Thill, an analyst at Jefferies changed his rating on the stock from a buy to a hold. The analyst also lowered his target price for Twitter stock from $20 to $16. The company has been experiencing very strong user engagement but its monetization via ads has been taking a dive. This proves that users on the platform do not translate to revenue. Thill stated that he expects the stock to underperform despite the user engagement on the platform.
“The stock has bounced off a low of ~$14 3x in the last 2 years and we believe recent management changes could help to improve the declining ARPU in the near term,” stated Thill.
Various channels also suggested that the poor revenue and stock performance is due to the lack of creativity and return on investment (ROI) in the currently available advertising options on Twitter. A recent Jefferies statement pointed out that the company’s ability to leverage unique live video content. The statement however pointed out that its strategies will most likely yield fruit over the long-term rather than an immediate effect on revenue.
Thill also pointed out that part of Twitter’s problem was what he described as the “Trump Effect” which basically refers to new users coming on board just to read Donald Trump’s tweets. He added that these are not the kind of users that advertisers are looking for especially in the major digital markets in the U.S.
The Jefferies analyst also pointed out various things that he believes would help to turn the company’s fortunes around. They include improvements in user engagement not only with the platform but also with the ads. Another point was that the company should shift its focus back to growing its user base especially in the U.S and the UK. Thill also suggested that there should be increased adoption from advertisers who can see clear ROI on improved ad products.