SunTrust's Bob Peck On Why He Downgraded Twitter Right Before Earnings

Twitter Inc TWTR is all set to release its quarterly earnings Tuesday. However, SunTrust Robinson Humphrey analyst Bob Peck downgraded the company's stock from Buy to Neutral just a day before results.

Peck was on CNBC recently to explain the reason behind his downgrade.

Not Facebook

"The genesis of our downgrade was a couple-fold," Peck said. "One is, while I think they'll have a good Q1, I think Wall Street is expecting that. So, really, the focus goes to Q2, and data we look at is indicating that maybe the MAUs so far for April haven't been that strong. The engagement as well hasn't been that strong."

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He went on to explain, "So, this could be a little bit shortfall. We also point out in the monetization side of things, Twitter is not Facebook. It's a fantastic company, but it's not the 'must buy' for advertisers that Facebook is. Twitter is more in that beta bucket.

"When you look at their pricing, the cost per engagement is similar, actually, even a little bit of a premium to where Facebook is."

Questionable Content

He continued, "But the last part we wanted to point out to investors was, there's some questionable content on Twitter deemed not safe for work. It's in violation of their terms of service; they cleanse it off a lot.

"But the problem we found was there is some advertising around this content from premium Ad Age 100-type companies that you would know well, and we think it's going to cause one of two things.

"Either: a) a cleansing of their users, as they cleanse these users off or b) advertisers are sitting on their advertising budget until Twitter can do it.

"We want to underscore, we don't think Twitter is complicit in this. We think they just don't know it's happening," Peck concluded.