Twitter Receives Analyst Downgrade, Thanks to Record Discontent Among Advertisers

(Bloomberg) -- Advertisers just aren't that into Twitter Inc. 

That's the conclusion of RBC Capital Markets Analyst Mark Mahaney, who downgraded shares of the micro-blogging social media network to "underperform" and lowered his price target to $14, from $17. The move was based on a proprietary survey performed by RBC that found that, for the first time, more marketing departments plan to decrease their ad spending on Twitter than plan to increase it.

The stock closed at $18.22 in New York on Thursday, 0.7 percent higher on the day, but proceeded to tumble in the after-hours session as news of the downgrade hit the wires.

As if Twitter's underwhelming user growth weren't enough cause for concern, RBC's survey shows that marketing departments are increasingly unwilling to advertise on the platform; those that do feel they aren't getting a lot of bang for their buck.

Thirty percent of respondents didn't spend any money advertising on Twitter, up 5 percentage points from February. A net 3 percent of respondents think their return on investment has improved on the platform, down from a balance of opinion of 8 percentage points. As such, it's tough to see how the company commands much in the way of pricing power.

"When ranked against its peers, Twitter ranked fifth of seven in terms of ROI to advertisers, behind Google, Facebook, YouTube and LinkedIn, but ahead of Yahoo and AOL," the analyst wrote.

Most alarming for Twitter is that this isn't an industry-wide problem, but a company-specific one. Respondents indicated that "online avenues continue to rise in importance as marketing channels." Just not this avenue. 

"Channel checks and our last four surveys (and particularly our most recent referenced above) don’t provide convincing evidence that a substantial number of advertisers will commit meaningful dollars to TWTR," the analyst wrote.

If it's any solace to shareholders, Mahaney still thinks the company is "a unique asset with a strong value proposition to core users." 

Of the 41 analysts surveyed by Bloomberg, seven rate the stock a "buy," seven give it a "sell," and 27 maintain a "hold" rating.

To contact the authors of this story: Luke Kawa in New York at lkawa@bloomberg.net, Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net.

To contact the editor responsible for this story: Dashiell Bennett at dbennett64@bloomberg.net.