Twitter's Dramatic Ad Revenue Deceleration Leads To RBC Downgrade

Following the 8th RBC Ad Age Survey, RBC Capital’s Mark Mahaney believes Twitter Inc’s (NYSE: TWTR) value proposition for advertisers could be waning.

Mahaney downgraded the rating on the company from Sector Perform to Underperform, while lowering the price target of $17 to $14.

What The Survey Revealed

The 8th RBC Ad Age Survey, conducted on 1,100 advertising professionals, including agency representatives, marketers, marketing consultants and media companies, sought to assess industry sentiment on Online Advertising.

The survey revealed that 26 percent of respondents intended to “significantly” or “modestly” raise their Twitter ad spend, as compared to 28 percent who planned to decrease spend.

Mahaney mentioned that this was “the weakest result we have seen and the first time we have seen a negative skew towards spending.”

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Numbers Decline

On the other hand, 30 percent of the respondents said that they did not allocate any budget to the Twitter platform, which was an increase from the 25 percent seen in the February survey. In fact, there was a decline in the number of respondents committing 1-10 percent of their online marketing budget to Twitter from 57 percent in the previous survey to 54 percent.

In addition, 24 percent believed that their ROI improved due to Twitter advertising, as compared to 21 percent who felt that their ROI had declined.

“Twitter believes it can command premium ad pricing, but its dramatic ad revenue deceleration doesn’t support that. We have believed that Twitter’s lack of real-time commercial intent and detailed, authentic profiles will eventually limit growth,” the analyst stated.

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