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Sterne Agee’s Arvind Bhatia has decided that enough is enough when it comes to the drop in shares of Twitter Inc. (NYSE: TWTR). He has decided to raise his rating to Neutral from Underperform, and the price target objective was put at $43, versus a $45.52 closing price. The upgrade may not sound like much on the surface, but the call is based on the risk-reward appearing more balanced.

The firm’s Underperform rating was predicated on three key factors: 1) slowing user growth, 2) declining user engagement and 3) premium valuation. After recent product changes, Bhatia sees a potential for user growth and engagement to improve in the near to medium term. He also thinks that ad engagement and monetization remain healthy.

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Be advised that this is ahead of the May 5 lockup expiration that will allow millions of shares to be sold. Twitter shares are now trading close enough to the firm’s target price that the risk-reward looks balanced at current price levels.

And on the lockup expiration, Sterne Agee points out that the leading insiders have indicated a desire to retain their holdings. This should alleviate some of the potential pressure on the stock.

Bhatia said:

One of the key investor concerns on Twitter continues to be its ability to attract new users and to keep them engaged. Recent surveys and studies continue to indicate this challenge remains. As an example, Twopcharts recently concluded that 44% of Twitter accounts have never sent a tweet. Of the remaining accounts, only 23% have tweeted in the last 30 days. Management has promised to improve this. Some of the recent tools Twitter has deployed to improve engagement include a revamp of user profiles with a focus on the visual elements (similar to Facebook), easier photo tagging (without the need to use the @ symbol), and more aggressive utilization of the notification feature (a way to alert users to new tweets and messages).

Bhatia pointed out that individually these changes are small, but collectively they are more meaningful. Some of the steps to improve engagement highlighted by management during the most recent earnings call included: 1) bringing content forward through launch of Media Forward, 2) launching more topic-oriented products, 3) improving the on-boarding process, 4) integration of richer media and 5) keeping Ad Load relatively low. He sees a potential for improvement in user growth and engagement in the near to medium term.

Another boost is that Twitter has just recently hired Daniel Graf as its new VP of Consumer Product. Graf was previously at Google and was most notable for bringing Google Maps to the iPhone.

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Another driver could be mobile app install ads. The mobile app install ad market will be $2.6 billion to $4.3 billion in 2014 and will increase to $11 billion by 2017. Bhatia said:

Twitter does have a product for mobile app installs but it’s not very compelling. Media reports suggest Twitter is about to launch a more serious mobile app install product in the near future. We think this is a potential catalyst to the stock, given the size of the market.