Twitter Inc.'s stock dropped 3.9% in active premarket trade Wednesday, after the social media company was downgraded to the equivalent of a sell rating at Morgan Stanley, which cited limited user growth and engagement and concerns over advertiser demand. Analyst Brian Nowak cut his rating to underweight from equal weight, and slashed his stock price target to $24, which is 22% below Tuesday's closing price, from $36. Nowak said he doesn't see how Twitter can be expected to double its revenue base through 2017, as consensus analyst estimates suggest, even though monthly active user growth is materially decelerating. Among other concerns, Nowak said he estimates that the company's current ad load is 10 times higher than Facebook Inc. when adjusted for time spent. "This creates a potential ad ceiling, as continued increases in ads/user has the potential to reduce click-through rates, lower advertiser [return on investment], and stifle user growth or, perhaps cause [monthly active users] to fall," Nowak wrote in a note to clients. "Engagement trends are moving against [Twitter's] advertising opportunity too, as average time spent per mobile user is falling...and at an accelerating rate." The stock has dropped 16% year to date through Tuesday, while the S&P 500 has slipped 4.2%.
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