Macquarie Downgrades Twitter, Says Valuation 'Will Likely Limit Upside'

User trends, limited catalysts and valuation concerns triggered a downgrade of Twitter, Inc. TWTR by Macquarie on Wednesday.

The Analyst

Macquarie analyst Benjamin Schachter downgraded Twitter from Outperform to Neutral with a price target lifted from $36 to $42.

The Thesis

Macquarie expects more business improvements and higher overall momentum at Twitter, Schachter said in the downgrade note.

The social media platform's competitive positioning should improve over time, the analyst said.

A point of concern are Twitter's usage trends, which have and will not increase rapidly, Schachter said. Product improvements will likely fail to attract more users to Twitter, he said.

A Statista study showed that Twitter is the fourth-most popular social networking site in the U.S., followed by Facebook, Instagram and Facebook Messenger. Infographic courtesy of Statista.

“While we expect business fundamentals to continue to improve (particularly from video opportunities and TWTR’s overall improving brand and competitive positioning for large brands), the valuation, after the recent rise in the stock, will likely limit upside from current levels," Schachter said.

Price Action

Twitter shares were trading down 3.6 percent at $43.11 at the time of publication Wednesday.