Wall Street's expectations for Twitter have been appropriately reset as evidenced by the recent nosedive in the company's stock, according to Nomura Instinet, which upgraded shares to neutral from reduce on Tuesday.

"Dealing with traffic and content quality on these platforms as well as protecting users' privacy comes at a cost and is likely to be an area of debate for several quarters, but we believe Twitter's health initiatives will likely benefit the greater platform over time," analyst Mark Kelley said in a note to clients.

"We see several key positives underway but also some unanswered questions that need to be examined as the company moves forward," he added. "On balance, we believe the risk-to-reward profile is balanced at current levels and we are changing our outlook to neutral, but maintain our current estimates."

The analyst pointed to the company's investments aimed at mopping up the platform as a long-term positive and improving advertising formats to lead to advertiser retention and possibly growth over time. Kelley maintained his price target of $31, representing 1 percent downside from Monday's close.

Twitter's stock on Friday suffered its single worst day since 2014 after the company reported a decline in monthly active users — a key metric used to gauge engagement – and offered anemic guidance.

Shares fell more than 20 percent on Friday and 8 percent on Monday, but closed up 1.5 percent Tuesday. Shares are off more than 33 percent from their 52-week high notched in mid-June.

The social media company reported 335 million monthly active users, down from 336 million in the prior quarter, blaming not moving to paid SMS carrier relationships in certain markets, some impact from new regulatory rules in Europe, and efforts to improve the "health" of the platform.

"Monthly active user patterns have been harder to estimate with ongoing efforts to clean up the platform," Kelley wrote. "This makes intuitive sense as "real" people (as opposed to fake accounts/bots) are likely to be active on a more consistent basis, but it makes understanding the moving pieces a bit harder to monitor and model."

Despite Twitter's efforts to purge fake accounts from the site to improve the platform and protect users from misinformation, the company's revenue grew 24 percent year over year with strong advertising gains.