NYSE: TWTR
COMPANY DESCRIPTION
Twitter,
Inc. operates as a platform for public self-expression and conversation in real
time. The company offers various products and services, including Twitter that
allows users to consume, create, distribute, and discover content; and
Periscope, a mobile application that enables user to broadcast and watch video
live with others. It also provides promoted products and services, such as
promoted tweets, promoted accounts, and promoted trends, which enable its
advertisers to promote their brands, products, and services. In addition, the
company offers a set of tools, public APIs, and embeddable widgets for
developers to contribute their content to its platform, syndicate and
distribute Twitter content across their properties, and enhance their Websites
and applications with Twitter content. Further, it provides subscription access
to its public data feed for data partners. The company has operations in the
United States and internationally. Twitter, Inc. was founded in 2006 and is
headquartered in San Francisco, California.
RECOMMENDATION
We rate Twitter, Inc. a BUY at USD 27.30 for a target of USD 35.
Below are the basic reasons to
recommend this stock as a BUY.
·
Twitter’s unique open platform is attractive to
due to its openness, real-time content, conversational format and distribution
ability. The platform’s greatest strength is its simplicity. The company
increased character limits for tweets to 280 from 140, to let users express
more in a tweet. The character expansion has been made across all languages
excepting Chinese, Korean and Japanese. Twitter had earlier done away with
calculating media attachments and @names in the count, enabling users to
express more in tweets.
·
Twitter also does not impose restrictions on
whom a user can follow, which greatly enhances the breadth and depth of
available content and allows users to discover the content they care about
most. Further, users can be followed by thousands of other users without
requiring a reciprocal relationship. Twitter announced that users can now
directly broadcast live video on its app through just a tweet. Moreover, it has revamped the app to better
the user experience.
·
Under its re-elected CEO, Jack Dorsey, the
company is focusing on boosting user growth rate and engagement levels. Twitter
remains focused on “live” and betting big on Periscope. It is now exploring
beyond just news and the series of live streaming deals are a step in that
direction. The company inked streaming deals with Vox Media and dick Clark
productions. It has also brought on board Bloomberg. In May, at the Digital Content NewFronts
event, Twitter announced more than 30 partnerships which includes deals with
the likes of Fox Sports FOXA, NBCUniversal , Viacom, Disney which includes a
ton of ESPN programming and many more. Live streaming has also resulted in an
increase in tweet impressions.
·
The company streamed 1,600 live events in the
last quarter. Twitter had earlier mentioned that online video budgets are over
$9 billion-$10 billion alone in the U.S and streaming deals will fuel a
“long-term shift away from desktop video to premium mobile environments and we
believe Twitter is well positioned to benefit from that shift.” We believe that
with increasing engagement levels, Twitter’s ad revenues should benefit
greatly. Growing adoption of video ad products like Video Website Cards &
Video App Cards is driving Twitter. To attract small business advertisers,
Twitter has started testing a $99 subscription service. With this subscription,
Twitter will handle all the advertisers’ promoted tweets on the social media
site.
·
Twitter's cost cutting initiatives helped it to
achieve its long-term EBITDA margin target in the last reported quarter. The
company is reducing 9% of its workforce worldwide, resulting in over $10 to $20
million of cash expenditure (mostly severance packages). Layoffs had long been
anticipated as the company intends to chart a solo strategy to turnaround
things. It’s a no-brainer that cost cutting will be an integral part of the
strategy. The company also plans to reduce its stock-based compensation.
Twitter recently sold its developer product Fabric to Alphabet Inc. in sync
with its focus on re-building its core businesses and lowering expenses of its
non-core businesses. Twitter also deprecated its ad Product TellApart.
·
Acquisitions have played a key role in Twitter’s
growth trajectory. To-date, the company has acquired over 50 companies that not
only expanded its technology but also improved its software developer talent
base. The acquisitions of TweetDeck (2011), Dasient (2012), Crashlytics (Jan
2013), Bluefin Labs (Feb 2013), MoPub (Oct 2013), Mesagraph (2014), SecondSync
(2014) Gnip (2014), CardSpring (2014), Mitro (2014), Periscope (Dec 2014) and Niche
(Feb 2015), Tenxer, Whetlab (Jun 2015) and FastLane, Zeropush (Oct 2015) Peer
(Apr 2016) and Yes Inc (Dec 2016)
expanded its product portfolio and infrastructure base. Twitter is also
stepping up its AR/VR efforts with the purchase of a machine learning company,
Magic Pony. In addition, it is looking to expand in emerging markets.
·
Twitter has been benefiting from rising number
of increasing mobile users and its strategic acquisitions. Moreover, recent
spate of live streaming deals looks promising.
LAST EARNINGS
Twitter reported second-quarter
2018 non-GAAP earnings of 17 cents per share, which was in line with the
Consensus Estimate, but much better than 8 cents reported in the year-ago
quarter.
Revenues of $711 million increased
24% from the year-ago quarter and beat the consensus mark of $700 million.
Excluding almost $14-million impact of the winding down of the TellApart
business, revenues surged 27%. FIFA World Cup contributed almost $30 million to
revenues.
In second-quarter 2018, Twitter’s
adjusted monthly average users (MAUs) totalled 335 million, up from 326 million
in the year-ago quarter but down 1 million sequentially.
U.S. MAUs of 68 million decreased 1
million sequentially but remained flat on a year-over-year basis. International
MAUs of 267 million increased by 9 million from the year-ago quarter but
remained flat sequentially.
Average Daily Active Users (DAUs)
were up 11% year over year, driven by double-digit growth in five out of the
top 10 global markets.
Advertising revenues increased 23%
year over year to $601.1 million. Owned-and-operated advertising revenues
soared 29% to $564 million.
U.S. revenues (52% of revenues)
increased 10% year over year to $366.7 million. Advertising revenues from the
United States totalled $293 million, up 9% year over year.
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