Twitter: overvalued niche product or social media giant?

Twitter, according to analysts, is either the overvalued owner of a niche product whose growth potential is fading or an undervalued social media phenomenon that is set to give Facebook a run for its money in mobile.

“We remain firmly in the latter camp…” said Deutsche Bank, one of one at least five brokerages that raised target prices or ratings on Twitter’s stock today.

Investors were not convinced, driving down Twitter’s shares 21 per cent in pre-market trading a day after the company reported its slowest pace of user growth in recent history.

Deutsche Bank, in a note entitled – Great Quarter, Aside From The Most Important Metric, said it was impressed by Twitter’s improving monetisation and expected slowing user growth to reverse during 2014.

The broker, which sees Twitter on its way to 1 billion user, maintained a “buy” rating on the stock and raised its price target to $65 from $50. Twitter shares were trading at $51.95 before the bell.

UBS, on the other side of the argument, issued a “sell” recommendation on the stock and cut its price target to $42 from $45. It was one of at least six brokerages to cut their target prices or recommendations on Twitter’s shares.

“A lack of mainstream adoption or a more simplified use case was a worry of ours coming out of the IPO and seems to have come to the fore faster than we had anticipated,” UBS analyst Eric Sheridan said in a note.

Twitter, whose shares debuted at $26 on the New York Stock Exchange in November, reported better-than-expected fourth-quarter revenue of $243 million in its first results since the IPO. But investors focused on the anaemic user growth, as well as a sharp decline in a measure of user engagement. Twitter averaged 241 million monthly users in the December quarter, up just 3.8 per cent from the previous three months.

That was the lowest rate of quarter-on-quarter growth since the company began disclosing user figures. But the company also said it made $1.49 per 1,000 timeline views, a 76 per cent jump from the same quarter of 2012. “We believe the accelerating user growth and engagement, supplemented by improvements in monetisation, will drive continued financial outperformance in the year ahead,” Goldman Sachs analysts said in a note. Goldman raised its target price to $69 from $65 and maintained its “buy” rating on the stock.

Twitter chief executive Dick Costolo expressed confidence that Twitter’s user growth would improve in 2014 once users get used to a change in layout to help new users.