Twitter (NYSE:TWTR) has fallen almost 40% since it peaked in June. Twitter stock, which reached $47, has now fallen under the $30 level. Even seemingly good news did little to change the stock’s trajectory.

Twitter’s latest earnings report at first blush appeared to be reasonably good. They beat on both earnings and revenues. However, TWTR stock plummeted following the quarterly results, and has continued grinding lower in the ensuing weeks.

Here’s what’s gone wrong for Twitter, and where they need to improve to get their momentum back.

Earnings Up, but Users in Doubt

In its most recent quarter, Twitter put up $711 million in revenue. That made for a 24% year-over-year growth rate, and it topped analyst consensus of $698 million by a healthy margin. Additionally, the company’s EPS of 17 cents beat by a penny.

And yet, Twitter stock dropped from $43 to $32 in the two trading days following the earnings report. Why did the earnings report cause such investor disgust? Two reasons: softer guidance and a decline in users.

While its daily active users moved up, its monthly active users fell, led by a one million user decline in the United States. Part of this is due to Twitter’s crackdown on bots, hate speech, and other such undesirable content.

However, Twitter has gotten itself into controversy. Some observers suggest that Twitter is targeting conservatives for more stringent enforcement of the terms of service, as Twitter has banned a number of prominent Trump-supporting accounts such as that of provocateur radio host Alex Jones.

This led to President Trump getting upset, suggesting that the censoring of his supporters on social media couldn’t continue. Also, Jack Dorsey was called to testify in front of Congress, setting off another sell-off in Twitter stock.

Given how much of Twitter’s user base is there for news, business, and politics, Twitter needs to walk a fine line when it comes to the appearance of political partisanship. Unlike at, say, Instagram, political content is a core feature for Twitter users, and the perception of bias could cause much sharper user declines going forward.

MoffettNathanson’s Bear Thesis

The latest jolt for Twitter stock came on Monday with another analyst downgrade. Michael Nathanson of the firm MoffettNathanson further lowered his outlook for Twitter going forward.

Nathanson, who had previously had a $23 target on Twitter stock, dropped that outlook even farther, arriving at a new $21 price target. Even after Twitter’s recent losses, $21 still represents 30% more downside.

Nathanson justified this pessimistic outlook by saying that Twitter is artificially keeping down its costs so far this year. Despite Twitter greatly increasing moderation efforts to try to head off the sorts of scandals that have hit Facebook (NASDAQ:FB), Twitter has reported nearly no operating cost increases so far in 2018.

The analyst went on to suggest that due to Twitter’s “amazingly low” cost growth, people are modeling Twitter as being more profitable in 2019 than it will be. But as Twitter spends more on content policing and its push for video engagement, costs will rise and margins slump.

Nathanson suggests that as other analysts figure out that Twitter’s costs are escalating, there will be a rush to lower forecasts across the street, causing further pressure on Twitter stock.

A Better User Experience

Twitter announced Tuesday that it will be offering users, after years of requests, access to a chronological timeline of all tweets posted by accounts that they follow.

Seemingly, Twitter has resisted this change since it feels that its smart algorithm for picking content gives users a better experience than simply posting everything in order. However, other sites, such as Facebook, have long offered users the choice of how to present content.

It’s a sign that Twitter may be changing. But will it be enough? Things that seem simple, such as giving Twitter an edit button, or increasing the 140 character message limit, either took way too long to implement or have never happened at all. Twitter remains a platform with great potential.

It offers a unique user experience compared to the other social networks. But it seems that Twitter’s executives and developers either don’t understand what their users want or aren’t good at following up on feedback.

Twitter Stock Verdict

Twitter stock is certainly a much better value than it was a few months ago. The sentiment went from giddy to depressed for TWTR stock in a heartbeat. That doesn’t necessarily make the stock a buy just yet though.

Remember that until Twitter crossed the threshold into consistent profitability, TWTR generally traded under the $20 mark. Investors bought into the company on the idea that the company had finally reached scale and built a large enough advertising business to generate strong profits.

Much of the bull thesis goes away if Nathanson’s worry about rising operating costs plays out. It’s hard to think that Twitter stays at or above the $30 level if they return to only marginal profitability or start making losses again.

And until they get user growth firmly reestablished, it will be hard to grow earnings, given the problems on the cost side. Let’s see how Twitter’s crackdown on bad actors and its effort to build user engagement go. Until Twitter gets some positive results in those areas, the stock is not a buy.

At the time of this writing, Ian Bezek owned FB stock.