Wedbush Assumes Coverage Of Twitter, Says Investors Should Remain On The Sidelines

• Shares of Twitter Inc (NYSE: TWTR) have lost more than 30 percent year-to-date and more than 50 percent from a year ago.
• Michael Pachter of Wedbush initiated coverage of Twitter with a Neutral rating and $30 price target.
• Pachter noted user growth has been "slow to materialize."

Shares of Twitter have lost more than half of its value over the past year as the company continues to struggle with growth issues and faces ongoing uncertainty in regards to its CEO role.

In a report published Thursday, Wedbush's Michael Pachter initiated coverage of Twitter with a Neutral rating and $30 price target given the company's "flawed" business model.

Related Link: Michael Pachter: Choose Facebook Over LinkedIn, Twitter

According to Pachter, Twitter claims to offer its user base access to real-time information on nearly every topic, but its service "remains difficult to use" and its "limited reach" reflects its "failure" to convince users of the benefits of its platform.

However, the analyst added that user time spent on the platform can "grow dramatically" once users are convinced there is a "compelling" reason for them to do so. As such, Twitter could ultimately rival Facebook Inc (NASDAQ: FB) in reach, but Twitter needs to change its strategy.

Pachter said Twitter users can be classified into two separate groups: "voyeurs" and "exhibitionists." The company must convince the "voyeurs" that it is acceptable to use the platform to capture and share real-time information on any topic of interest. At the same time, the company has to convince the "exhibitionists" to post real-time information as events unfold. In order to accomplish this, the company must provide incentives to its users that "rewards" them for capturing an audience.

Finally, Pachter noted that until Twitter's management implements a strategy that will drive user and engagement growth, investors should remain on the sidelines. In addition, the company has a "leadership void' and made little progress in making its service easy for new users while also failing to convince advertisers of the value of the platform.

Bottom line, Twitter has an opportunity to "jump start" a new strategy with the selection of a permanent CEO. At that time, Pachter stated he "may become more constructive."