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Twitter downgraded to 'neutral' by UBS, which sees margin pressure ahead

Analyst Eric Sheridan said the social media giant's need to invest further would keep a lid on growth

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Sheridan reckons Twitter bosses may guide for a rise of between 17% and 20% to operational expenditure for 2020

Shares in Twitter Inc (NASDAQ:TWTR) flew lower before the New York bell after Swiss broker UBS downgraded the stock to 'neutral' from 'buy', citing pressure on the group's margins for 2020. 

Analyst Eric Sheridan said the social media giant's need to invest further into its safety, security and advertising technology would keep a lid on growth. 

He added that he sees the tech giant at a 'bit of a crossroads' in which it should be able to capitalize this year on huge global events such as the Olympics and the US presidential election, but management was likely to persist with investments around security and advertising, which they must, if the company is to meet its long term goals. 

READ: Twitter posts better-than-expected second-quarter revenue, sees increase in daily users

Sheridan reckons Twitter bosses may guide for a rise of between 17% and 20% operational expenditure for 2020, versus UBS estimates of around 16% and Wall Street consensus of around 15%.

This sort of increase will put pressure on margins, Sheridan said, who added there is unlikely to be a more robust revenue picture until there are easier comparisons and due to the event calendar in the second half of this year.

"This leaves us moving to the sidelines," he said.

UBS also cut the target price on Twitter to US$35 from US$37 previously.

Shares in pre-market shed 1.32% to US$33.74.

Quick facts: Twitter Inc

Price: 36.91 USD

NYSE:TWTR
Market: NYSE
Market Cap: $28.66 billion
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