In a blistering note, titled "A Moment Too Late?", Morgan Stanley's analysts say Twitter shows signs of limited user growth, declining engagement, a lack of material, incremental advertiser demand, an already-high ad load and ad pricing, and rising competition from rivals in the mobile space.
Business Insider has contacted Twitter for comment and we'll update this article if we hear back.
Here's where Morgan Stanley thinks Twitter is going wrong.
Twitter is performing well below Wall Street expectations
Morgan Stanley says the Street is calling for Twitter to double its revenue base between now and 2017, despite the fact that its monthly active user growth is decelerating year on year. Currently Twitter's run rate is 18% below that 2017 target, and it's 25% low on earnings (EBITDA.)
It will be a long slog ahead for Twitter to reach that lofty Wall Street revenue target. Morgan Stanley estimates revenue per user would have to grow at a compound annual growth rate of 32% - from $7.53 currently to $12.73 - just to reach those Street numbers.
Twitter is reaching an ad load ceiling
Morgan Stanley thinks Twitter will struggle to get there, partly because its analysts believe it can't keep shoving more and more ads in front of users. Morgan Stanley's analysts estimate that Twitter's ad load is already 10X higher than Facebook's when adjusted for time spent.
This creates an "ad load ceiling" as increasing ad load will likely negatively impact the effectiveness of ads, or could even turn users away from the platform. That's not good at a time when user engagement is already down - average time spent per mobile user was down 33% year on year in the third quarter of 2015, according to Morgan Stanley.
Its analysts also believe that monthly active user growth going forward will likely be "tepid."
Twitter's ad pricing is already high enough as it is
Morgan Stanley estimates that Twitter's mobile CPMs (the cost to reach 1,000 users) is already at a 13% premium to Facebook.
The note says: "In addition, some of our TWTR agency conversations remain tepid, with marketers flagging TWTR's limited scalability (aka reach) as a factor holding back ad budgets. The competition for users' time and advertisers' mobile and social ad dollars is rising, too, as other platforms - like Instagram, Snapchat, and YouTube - with stronger user and/or engagement growth continue to increase their push for ad dollars."
Morgan Stanley caveats that its call to downgrade Twitter's stock could be challenged if the company somehow manages to re-accelerate monthly active user growth.
Twitter made a big bet to do just that with the launch of its new Moments feature that highlights the best tweets around certain events, in a bid to capture the interest of new and lapsed users and help them understand the value of Twitter better.
However, Morgan Stanley says Twitter's efforts may be too little too late.
"It is too early to say 'Moments' is a success, and we question whether it may be too late to meaningfully change TWTR consumer perception and behavior. Fewer MAUs means even less time to monetize," the note reads.