Analysts Predict Difficulties Ahead for Twitter

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Twitter (NYSE:TWTR) shares are down over 4 percent at the time of writing in afternoon trading on Monday after two analysts downgraded the stock and the site announced a new advertising strategy.¬†According to research notes seen by Barron’s, Wells Fargo and SunTrust Robinson Humphries have both downgraded the stock, saying that Twitter will soon face difficulties in terms of generating revenue and the site’s current user engagement is leaving something to be desired.

Wells Fargo analysts cited data showing that only about half of Twitter’s monthly active users actually tweet, while the other half just use the microblogging site for reading. Those more passive users are much less valuable to advertisers, as they’re less likely to retweet companies’ tweets or follow company accounts.

“While we acknowledge that many ardent Twitter users are readers and not Tweeters (ourselves included), we nonetheless consider the ratio a potential liability for the simple reason that the retweet is arguably the most valuable engagement metric in the eyes of many advertisers. If this relationship continues, we believe marketer ROI could suffer,” Wells Fargo said in its note.¬†

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