A downgrade Monday on Twitter from a Morgan Stanley analyst sent shares of the recently public company tumbling by more than 7 percent in intraday trading.
Just two months after Twitter's IPO, Morgan Stanley analyst Scott Devitt cut his rating on the social media site to underweight, saying that Twitter would fall short in a battle for online advertising dollars against Facebook and Google, Marketwatch report Monday.
Twitter shares had gained more than 150 percent since its initial offering of $26 a share. Devitt's price target for Twitter is $33 a share.
"Despite the ease at which users can sign up for Twitter, we think it is inherently more complicated to understand how to get the most out of Twitter compared to Facebook's service, which is easier to us," Devitt said in the report, according to Marketwatch.
Slumping stock prices early after an IPO are not unusual in the social media market. Facebook debuted at $42 a share in 2012 but concerns about overly rosy projections and potential mobile risk inherent in the business caused shares to tumble to $18 a share three months after its debut.
A year later, shares had rallied to $25. Today it is trading at more than $55 a share as it approaches its two-year anniversary in May.
So although Devitt said Twitter was at risk of being a "niche product" that would find it difficult to expand its audience to reach the online advertising dollars that Facebook and Google have claimed, it could be that Twitter - like Facebook before it - simply is the victim of overanalysis often presented to newly public companies, especially those in the social media world.
Devitt did cite two interesting reasons for his better ratings on Facebook and Google. He said that expectations for revenue from Instagram boosted his sales estimates for Facebook. Facebook made that purchase in 2012. He said that Google's most underappreciated asset was YouTube, an acquisition made by Google in 2006, because of the amount of time audience spends watching online videos and its share of digital advertising budgets.
So if Twitter can find a way to monetize Vine, an online video app that it purchased in 2012, that could change the financial landscape in social media the way that YouTube and Instagram have.
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