Shares of social media company Twitter Inc. (TWTR) are down 4.5% on Monday morning following a downbeat report from one team of analysts on the Street who expect the stock to suffer as investors take into account growing costs necessary to ward off new competition and appease regulators.
(See also: Twitter Gets Wrecked on the Street.)
Twitter in 'Dire Need' to Improve Platform Safety and Invest in Video
In a note to clients on Monday, MoffettNathanson analyst Michael Nathanson reduced his price target on Twitter stock to $21 from $23, as reported by CNBC. His new 12-month forecast implies a more than 30% downside from Friday's close. Trading at $28.77, TWTR reflects a near 20% return year-to-date (YTD), outperforming the S&P 500's 8.3% increase and the Nasdaq Composite Index's 15% gain over the same period.
"For a business locked in competition with industry giants and under siege from regulators, reported operating expense growth has been amazingly low," wrote Nathanson, who rates shares of the Silicon Valley tech giant at sell.
The analyst noted that in the first two quarters of 2018, Twitter has reported operating expense growth between 0 percent to 3 percent respectively. Yet after digging into the firm's most recent 10-Q filings with the Securities and Exchange Commission (SEC), Nathanson and his team "would argue that the true underlying cost growth has actually been materially higher in the range of 13 percent to 15 percent."
Moving forward, the Twitter bear doesn't see costs letting up by any means, writing that the firm is in "dire need to improve platform safety" and build out its video content.
Recently, Twitter has doubled down on cleaning up its platform, removing million of suspicious accounts and permanently banning certain users, such as conspiracy theorist Alex Jones. Earlier this month, Twitter's Chief Executive Officer (CEO) and founder Jack Dorsey joined Facebook Inc.'s (FB) Chief Operating Officer (COO) Sheryl Sandberg to testify in front of the Senate Intelligence Committee regarding meddling in the 2016 US. elections and broader abuse on social platforms.
(See also: Twitter Sinks on Dorsey’s Testimony.)