Social media site Twitter (TWTR) saw its shares tumble 17 percent in extended-hours trading despite reporting quarterly results that exceeded Wall Street expectations.
Analysts gave a mixed assessment of the company's fortunes on Thursday morning, highlighting key areas in which the microblogging company needed to improve in order for its share price to continue its meteoric rise. That rise which has seen it appreciate 47 percent in the 60 trading days since its initial public offering.
Swiss bank UBS (UBS) was least impressed. A team led by Eric Sheridan downgraded its view on the stock to "sell" rating from "neutral" due to negative trends in Twitter's user growth and engagement.
"Given the likely forward effort to improve user growth and engagement [including product development costs], we see little potential for upside in estimates over coming quarters. Even after last night's stock correction, Twitter remains one of the most expensive stocks in our universe," the bank said in a note on Thursday morning.
Twitter posted earnings of 2 cents a share for the fourth quarter, excluding one-time items, on sales of $243 million, on Wednesday after the close.
The numbers beat expectations in a Reuters poll but the more detailed metrics had analysts scribbling into the early hours.
The company said it averaged 241 million monthly users,
And timeline views dropped sharply from 159 billion to 148 billion in the quarter, signaling that users were refreshing their Twitter accounts less often.
UBS added that Twitter needed to demonstrate a clearer trajectory of user and advertising growth in order for it to become more constructive on the stock. It still considered it to be a "unique social media platform" with long-term monetization potential.
It gave it a 12-month price target of $45, against Wednesday's closing price of $65.97 and its extended-hours price of $54.80. Pivotal Research Group kept its "sell rating" for Twitter with a target price of just $34. RBC Capital Markets was more sympathetic, giving it an upside to $60 and maintaining its "outperform" rating.
Twitter needs to prove that it can successfully increase its reach with advertisers and that it can successfully increase its user base and engagement levels, according to RBC. The latter can be done by "mainstreaming its offering", it said.
"We know that Twitter's 'mainstreamization' efforts have only just begun, initial moves to incorporate media elements (e.g., photos, videos) are intuitively mainstream, and our history of the Internet suggests that good execution can lead to improved user/usage growth," the bank's analysts, led by Mark Mahaney, said in a research note.
Meanwhile, analysts at Evernote also maintained their "overweight" rating but shaved their target price to $66 from $70, demanding Twitter demonstrate stronger user growth and engagement. JPMorgan (JPM) kept its "neutral" rating on the stock but upped its price target to $44 from $40.
JPMorgan said that it believes Twitter is fundamentally changing the way people communicate and consume information, but sees it at more than fairly valued at current levels.
"We recognize that it is still early in potential user growth, and certainly in [advertising] monetization and product innovations, but the challenges around user metrics in [the fourth quarter] are likely to raise more questions around whether Twitter can become a truly mainstream product," JPMorgan analysts said in a research note on Thursday.
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