Twitter (TWTR) didn’t have a good start to the morning, with TWTR stock gapping down about 6% to $64.93. The movement was in response to Morgan Stanley (MS) analyst, Scott Devitt, who put out a research report on the firm — a tough downgrade on TWTR stock.
As with others on Wall Street, Devitt is still a fan of Twitter’s core business, but the competition for ad dollars is likely to be intense. Keep in mind that the company has been moving aggressively into the TV market with its Amplify product, which makes Twitter into a “second screen” for viewing. The problem is that Google’s (GOOG) YouTube and Facebook’s (FB) video platform have more scale. In other words, TWTR stock should be valued as a company with a second-tier position in the market.
Now it’s true that Twitter has other key advantages. Being one of the pioneers of mobile-first, the company is in an ideal position to scoop up large amounts of mobile ad revenues. It also helps that the company has a global brand and has become critical for such things as media broadcasts, fan communications and even customer support. But despite all this, it looks like the big move in TWTR stock was largely due to the expectations of the TV opportunity, which now looks to have been overblown.
Devitt is not alone with his skepticism: The average price target on TWTR stock is about $46. No doubt, this is definitely worrisome since sell-side analysts tend to be an optimistic group.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.