Investment firm Rosenblatt downgraded Twitter ( NYSE: TWTR ) on Wednesday as the debate surrounding the whistleblower complaint from its former head of security has raised the risks surrounding the stock.
Analyst Barton Crockett lowered his rating on Twitter ( TWTR ) to neutral from buy and lowered his price target to $37 from $52, noting there are now "meaningful uncertainties" surrounding shares, especially as the company engages in a legal battle with Elon Musk.
"The filing appears to open up a new avenue for Musk to allege materially inaccurate representations by Twitter, allowing Musk to move on from a fishing expedition on well-hedged spam disclosures," Crockett wrote in a note to clients. He added the world's wealthiest person could use these claims to "argue that security malpractice constitutes a material adverse effect."
In July, Musk said he was terminating his deal to buy Twitter ( TWTR ) for $54.20 per share and the two parties have been engaged in a back-and-forth since, with both parties suing the other.
Barton added that the complaint from Twitter ( TWTR ) security chief Peiter 'Mudge' Zatko also hits at the company's management, noting that Parag Agrawal, the company's Chief Executive and former CTO, concealed issues from Twitter's ( TWTR ) board of directors.
Zatko previously filed a complaint with the Securities and Exchange Commission alleging "egregious deficiencies" in Twitter's ( TWTR ) security practices.
Responding to a complaint filed by Zatko, Twitter ( TWTR ) said on Tuesday that it stood by its disclosures on spam and bot accounts. A Twitter ( TWTR ) spokesman added that Zatko had been fired for performance and his claims are "riddled with inaccuracies."
It's likely that Twitter ( TWTR ) will not want this matter to drag on, Barton explained, and it's possible the company offers a concession to Musk to get the deal done.
Earlier this week, Musk subpoenaed friend and former Twitter ( TWTR ) CEO Jack Dorsey as part of the upcoming five-day court case, scheduled to start on October 17 .
Analysts are overwhelmingly cautious on Twitter ( TWTR ). It had an average rating of HOLD from Seeking Alpha authors , while Wall Street analysts rate it a HOLD . Seeking Alpha's quant system, which consistently beats the market, also rates TWTR a HOLD .
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Twitter downgraded at Rosenblatt as whistleblower complaint 'heightens risks'