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Twitter Stock Decline Latest Ill As New Ads Cannibalize Older Ones

Twitter ( TWTR ) collected a wave of price-target cuts and ratings downgrades on Wednesday, and its stock continued to fall, after the microblog late Tuesday posted a Q1 revenue miss and gave Q2 revenue guidance well below expectations. Twitter was down more than 15% in afternoon trading in the stock market today , near 15 and at a two-month low. The company said in a letter to shareholders that its revenue “came in at the low end of our guidance range because brand marketers did not increase spend as quickly as expected in the first quarter.” The weak demand among brand advertisers also resulted from newer advertising types, mainly video, cannibalizing the company’s legacy “promoted Tweet” ads. The continued slowdown in Twitter usage has come about despite a series of new features it rolled out last year, including video tool Periscope and Moments. The company said monthly active users rose to 310 million, up 3% year over year and up from 305 million in Q4. But that marked the ninth straight quarter of slowing year-over-year user growth. Twitter posted user growth of 18% year over year in Q1 2015. Still, the 310 million edged the midpoint of analysts’ views that Twitter’s user tally would be 307 million to 310 million. Pivotal Research Group cut its price target on Twitter stock to 27 from 39 on Wednesday. But the investment bank said its long-term view was positive. “Despite the slowdown in brand-related spending cited during the conference call, Twitter remains the fourth-most-important player in digital advertising outside of China (after Alphabet ( GOOGL )-owned Google, Facebook ( FB ) and Verizon ( VZ )‘s AOL). This position is unlikely to be altered any time soon,” wrote Pivotal analyst Brian Wieser in an industry note. Wieser lowered his estimated for 2016 revenue growth to 26% from 33%, but said “we continue to expect that the platform retains its current level of importance to consumers and advertisers alike.” Twitter’s Promoted Tweets Victimized By Other Twitter Ads Twitter’s higher-performing ad products — including auto-play video, app installs and direct response — “attracted greater demand than that of legacy Promoted Tweets, thereby cannibalizing previously housed revenue,” said Monness Crespi analyst James Cakmak in a Wednesday report. Cakmak said potential pluses for Twitter that could bring strength in the second half of the year include the microblog’s Web streaming deal recently reached with the National Football League. “This deal and perhaps more content partnerships can help serve as a user accelerant, assuming the product experience is right,” said Cakmak. This month, Twitter expanded its three-year relationship with the NFL to include streaming 10 “Thursday Night Football” games, as well as pregame analysis shows, postgame highlight shows and behind-the-scenes Periscope broadcasts next season. Cakmak added that search leader “Google’s dependence on Twitter content” is another positive. “Twitter makes Google stay relevant in real-time search, giving them every incentive to help the company succeed.  This is a critical alliance vs. Facebook,” he wrote. But Monness Crespi cut its price target on Twitter stock to 22 to 25. The real reason advertisers do not want to spend more on Twitter is because “its focus remains too narrow,” said Edison Investment Research analyst Richard Windsor in an industry note Wednesday. “To turn this around, Twitter needs to find something to encourage users to spend more time within its properties and break out of being a news broadcaster.”  

Will LinkedIn Avoid Another Stock-Gutting With Q1 Earnings?

LinkedIn ( LNKD ) saw its stock bomb 44% to a three-year low after the company reported fourth-quarter earnings on Feb. 5, as its Q1 guidance widely missed estimates. In the conference call that followed, LinkedIn acknowledged that a reshuffling of product strategy will impact short-term revenue growth in favor of the long term. Perhaps the most startling announcement was that LinkedIn will shutter a business called Lead Accelerator. That decision cut the company’s 2016 revenue forecast by $50 million, as analysts slashed their price targets on LinkedIn stock. Shares have since regained 11% of that decline, though LinkedIn stock was down 2.5%, near 119, in afternoon trading in the stock market today . Shares have a long way to go to get back near former levels. LinkedIn is scheduled to report first-quarter earnings after the market close Thursday. The consensus estimate for the networking site for professionals is revenue of $828.5 million, up 30% year over year. Analysts polled by Thomson Reuters expect earnings per share minus items of 60 cents, up 5% but a sharp drop from growth of 54% in the prior quarter. RBC Capital Markets analyst Mark Mahaney has a sector perform rating on LinkedIn, with a price target of 156. The Lead Accelerator business had been created out of LinkedIn’s $175 million acquisition of Bizo in July 2014. The technology focuses on boosting the ability of marketers to target prospects and had been considered a high-growth opportunity. LinkedIn said the manpower needed to boost Lead Accelerator was not worth the time and effort, and that it was “a higher-than-anticipated demand on resources.” The move did not go over well with analysts, with one calling it a “gigantic mistake.” Credit Suisse analyst Stephen Ju has an outperform rating on LinkedIn stock and a price target of 176, down from a previous target of 230. “We maintain our outperform rating but do concede that patience will be required for the company to start showing more meaningful catalysts to drive share price appreciation, namely margin expansion,” Ju wrote. Facebook ( FB ) Q1 earnings will come after the close Wednesday. The company soundly beat Q4 earnings expectations on booming mobile ad revenue. Facebook has posted double-digit growth in revenue, year over year, for more than four years — and analysts say another quarter of double-digit revenue growth is coming. The consensus on Facebook revenue is $5.25 billion, up 48%. Analysts expect EPS ex items of 62 cents, also up 48%.

Yahoo, Starboard Value Call A Truce, Agree To Four New Directors

In what Yahoo ( YHOO ) CEO Marissa Mayer called a “constructive resolution,” the troubled Web portal announced Wednesday that it had reached an agreement with activist investor Starboard Value to add four new independent directors to the company’s board. In March, Starboard had proposed replacing Yahoo’s entire nine-member board with its own slate, saying Yahoo’s current management team and board had “repeatedly failed shareholders” and shouldn’t be in charge of a strategic review of Yahoo’s core search and display ad business or determine the fate of Yahoo’s 15% stake in China e-commerce giant Alibaba Group ( BABA ) and its holdings in Yahoo Japan. Under the agreement announced Wednesday, Starboard has withdrawn its director nominees. Instead, Yahoo will add four new independent directors, including Starboard CEO and Chief Investment Officer Jeffrey Smith. Also joining the Yahoo board are Tor Braham, a former managing director and global head of technology mergers and acquisitions for Deutsche Bank Securities; media executive Eddy Hartenstein; and Richard Hill, the former interim CEO of Tessera Technologies ( TSRA ). At the company’s upcoming annual meeting, two incumbent directors will not stand for re-election, giving Yahoo an 11-member board going forward, the company said. “This constructive resolution will allow management and the board to keep our focus on our extremely important objectives,” Mayer said in a statement. Starboard’s Smith said, “We look forward to getting started right away and working closely with management and our fellow board members with the common goal of maximizing value for all shareholders.” Yahoo is in the process of evaluating buyout offers. Yahoo stock has more than doubled since Mayer, who had been a top executive at Alphabet ‘s ( ) Google, was hired as CEO in July 2012. But she’s been unable to spark significant earnings and revenue growth, and Yahoo has struggled to build online- and mobile-ad revenue vs. rivals Google, Facebook ( FB ) and others. Yahoo stock was down 1% in midday trading in the stock market today , near 37, down 18% in the past 12 months but up 40% since early February in anticipation of a sale. Last week, Yahoo gave no specifics on its efforts to find a buyer for its core business and perhaps its big stakes in Alibaba and Yahoo Japan. Most of Yahoo’s value comes from its Alibaba stake. Yahoo’s total market cap is near $34.8 billion. Yahoo last week reported Q1 earnings and revenue that topped Wall Street expectations, but its Q2 revenue outlook lagged analyst expectations. For Q2, the company forecast revenue of $1.05 billion to $1.09 billion, down 14% at the midpoint and below consensus views of $1.102 billion. Yahoo had reportedly had set a deadline of April 18 for bids by potential acquirers, with Verizon Communications ( VZ ), which owns AOL, rumored to be among the most active bidders. For Q2, Yahoo forecast revenue of $1.05 billion to $1.09 billion, down 14% at the midpoint and lagging consensus views of $1.102 billion. Alibaba stock was down nearly 2% midday Wednesday, near 77, while Verizon stock was up nearly 2%, near 51.