Bank Says It May Be 'Too Late' To Fix Twitter

Twitter (Xetra: A1W6XZ - news) shows signs of limited user growth, a lack of material, falling engagement, and rising competition from mobile rivals.

That's the damning verdict of Morgan Stanley (Xetra: 885836 - news) 's analysts, who've now downgraded Twitter stock to "underweight".

The return of Twitter co-founder Jack Dorsey as chief executive has seen the company gain large investments from former Microsoft (NasdaqGS: MSFT - news) boss Steve Ballmer and Prince Alaweed bin Talal of Saudi Arabia in recent days.

But Morgan Stanley has warned that Wall Street's target - for Twitter to double its revenue base between now and 2017 - is unrealistic.

It (Other OTC: ITGL - news) points out that monthly active user growth is stalling, with the number of new sign-ups decelerating year on year.

To hit the target, it says revenue for each user will have to grow from $7.53 to $12.73 - a tough task.

Morgan Stanley said it cannot see how the social network can add more adverts to the network, because it already has 10-times the number of adverts at Facebook (NasdaqGS: FB - news) when adjusted for time spent on the site.

It could be approaching what experts call an "ad load ceiling", where more ads negatively impact the site - potentially even turning users away from Twitter.

User engagement on mobile is down 33% year on year in the third quarter of 2015, so Twitter cannot afford to alienate any more users.

Morgan Stanley's note added: "In addition, some of our Twitter agency conversations remain tepid, with marketers flagging Twitter's limited scalability (aka reach) as a factor holding back ad budgets.

"The competition for users' time and advertisers' mobile and social ad dollars is rising, too, as other platforms – like Instagram, Snapchat, and YouTube – with stronger user and/or engagement growth continue to increase their push for ad dollars."

It acknowledged Twitter's new 'Moments' news aggregation service, but said "we question whether it may be too late to meaningfully change Twitter".

Last week Twitter announced it was cutting more than 300 jobs - 8% of its global workforce - as part of a cost-cutting drive.