Shares of Twitter dropped more than 20 percent Thursday—a paper loss of $7.8 billion—after it reported sluggish user growth. The selloff was a sign that the social network will have a tough time regaining its stature with advertisers, at least until it releases better numbers, a senior tech analyst told CNBC.
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“To us, when you’re talking about opportunities relative to communicating with advertisers, you want to lead with a large and growing and increasingly engaged user base,” S&P Capital IQ’ s Scott Kessler said on “Squawk on the Street.” “And Twitter doesn’t seem to have the data to support that proposition.”
Twitter closed Wednesday’s trading session at $65.97 per share before posting earnings after the bell, the first quarterly report since it went public in November. It reached a low of $50 per share during trading Thursday. The formerly red-hot social media stock had zero room for error, said Colin Sebastian, a senior research analyst at Robert W. Baird & Co.
“The stock was priced for perfection—the underlying metrics really do matter in that scenario,” Sebastian said. “The spotlight is back onto user growth. And the stock will be in the penalty box until we get a better read on whether their initiatives are having any impact.”
Sebastian, who holds a neutral rating on Twitter stock, said he would consider buying Twitter shares if they drop into the mid-$40-per-share range. Kessler said he has held a sell rating on Twitter for the past few months, mainly based on concerns about user engagement.
—By CNBC’s Jeff Morganteen. Follow him on Twitter at @jmorganteen and get the latest stories from “Squawk on the Street.” CNBC’s Giovanny Moreano contributed to this report.