SAN FRANCISCO (MarketWatch) — The year isn't even a week old, yet the competition for online advertising dollars has become such a hot topic for the Internet market that industry sentiment is already pointing toward the dominance of Facebook Inc. and Google Inc. and away from the just-gone-public Twitter Inc.
That's the thesis espoused by Morgan Stanley analyst Scott Devitt, who on Monday cut his rating on Twitter (TWTR) to underweight, or the equivalent of sell, from equal weight. Devitt called Twitter a "compelling" platform for social networking, but said that, unlike Facebook, the microblogging company is at risk of remaining a "niche product" that will find it difficult to expand to a broader, money-generating audience.
Devitt said that one of the factor's against Twitter is the growing competition for ad revenue online, with such investments likely to continue to go more toward the larger established social-Internet platforms. Devitt said that in 2013, Twitter's worldwide ad revenue accounted for just 6% of the $10.3 billion in "socially enabled" online ads, while Facebook (FB) claimed 66% of that market. Within four years, Devitt estimates Twitter will have 10% of a socially-enabled ad market valued at $29.4 billion, but its gains will come from sources other than Facebook, which Devitt expects to still hold a 66% market share.
"Despite the ease at which users can sign up for Twitter, we think it is inherently more complicated to understand how to get the most out of Twitter compared to Facebook's service, which is easier to use," Devitt said in a research report.
/quotes/zigman/23556538/delayed/quotes/nls/twtr TWTR 66.29, -2.71, -3.93%
As evidence of the difference in usage between Twitter and Facebook, Devitt cited statistics from a Pew Research Center Internet project report which showed that while 90% of Twitter users also use Facebook, just 22% of Facebook's users also use Twitter.
Twitter's stock ended the day with a loss of almost 4%, at $66.29 a share Monday following Devitt's report, but is still up more than 146% since the company priced its IPO on Nov. 7, 2013 at $26 a share. Devitt has a price target of $33 a share for Twitter.
Meanwhile, Devitt raised his price target on Facebook to $62 a share from $53, and kept his rating on the stock at overweight, as he added expectations for revenue from Instagram into his sales estimates for Facebook. Devitt said advertising from Instagram could add $1 billion in incremental ad revenue to Facebook by 2020. Devitt also cited Facebook's launch of its News Feed video and the likelihood of it attracting more TV ad spending online as making the company "the best way to play social Internet [market]".
Devitt also raised his price target on Google (GOOG) to $1,172 from $1,075, and said that YouTube remains the company's "most-underappreciated" asset due to the amount of time it captures from time spent watching videos online and its share of digital advertising budgets. Devitt maintained an overweight rating on Google's stock.
Additionally, Devitt initiated coverage of IAC/InterActive Corp. (IACI) with an equal weight rating and best-case stock price scenario of $67 a share.More news from MarketWatch:
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