UPDATE: Wells Fargo Downgrades Twitter After Examining Challenges

On Monday, Wells Fargo Securities analyst Peter Stabler downgraded Twitter, Inc. (NYSE: TWTR) from Market Perform to Underperform based on notable risks to the company and advertisers.

Wells Fargo examined Twitter's challenges including the "(1) widely varying degrees of consumer engagement, (2) discounting of engagement metrics/high costs, (3) potential challenges to rapid adoption of TV related products, and (4) amplification risk associated with marketer mis-steps using the platform." Stabler specifically noted that Wells Fargo research indicates that almost half of Twitter's monthly active user base has not tweeted in the past month. The analyst commented that he does not believe the published MAU "accurately reflects the advertising opportunity," as for advertisers, "the number of active Tweeters is highly relevant due to the fact that we believe the “retweet” is the single most-valuable form of engagement currently offered by the Twitter platform, much like we believe a “share” is the most highly valued form of social action on the Facebook platform."

Stabler noted that valuation is stretched but maintained a $36-39 valuation and prior estimates.

Twitter closed at $55.33 on Friday.