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  • THE HOUSE BRINGS RELIEF - By WSS Research Desk 0 comments
    Oct 4, 2013 2:19 PM | about stocks: TWTRQ, FB, AAPL

    By Carlos Guillen

    Today's trading activity is turning out to be rather encouraging as stocks, as reflected by the Dow Jones Industrial Average, have been trading in winning territory for most of the first half of the session. Some signs that there will be attempts to reach an agreement in Washington are bringing a bit of confidence that the entire mess will not affect stocks that much ... at least for now.

    This entire week has been dominated by the government shutdown as investors have been increasingly concerned about its effects and how this will throw a wrench into the so fragile gears of the economy. However, today there are whispered words on the Street that the House of Representatives will find a way to reach some form of agreement on passing the fiscal budget and end this crazy and needless U.S. Government shutdown. However, if these whispers fail to come to fruition, we can expect to see another wild week of trading activity, and only extraordinary earning results from the likes of Wells Fargo and JPMorgan may help attenuate losses next week, as earnings season commences.

    On the economic data front, well ... there is no significant data to mention. The fact that the government is in shutdown mode has prevented the Bureau of Labor Statistics from releasing its so anticipated jobs report, which usually is delivered the first Friday of every month.

    In corporate news, after the closing bell yesterday, Twitter filed formal paperwork for the social-media site's much-anticipated initial public offering. The company conveyed that it made $253.6 million in revenue and recorded a loss of $69.3 million during the first six months of the year. Twitter proposed a ticker of "TWTR" but didn't say which exchange it chose for its primary listing; more on Twitter below.

    It is also worth mentioning that there is a tropical storm gaining momentum in the Gulf of Mexico, and this has November crude-oil futures making gains.

    In essence, today's trading activity has been rather dull drum, and off course, all the talk is about the shutdown in Washington and the potential challenges it could pose for the global economy the longer it persists.

    Welcome Twitter
    By David Urani

    Twitter is getting closer to its introduction to the public market and last night they issued their official S-1 documenting financial performance over the past couple of years and a general overview of the company. The ticker will be TWTR and although it isn't trading yet, nor have its shares even been given a price, I couldn't wait to sink my teeth into the numbers. So let's take an overview:

    I'm sure you know about Twitter by this point so I won't trouble you with everything that it does. That said, it has revolutionized social networking and there's nothing else quite like it out there. Its main use is probably for communicating with pals and following the lives of celebs but it has so many other uses beyond that. It's become a very useful forum for posting breaking news and other information.

    It's also a fantastic tool for financial professionals such as myself, particularly when it comes to getting stock-related news well before other major media sources give it out. One example of that would be when Carl Icahn (@Carl_C_Icahn) broke the news on Twitter first in August when he took a large stake in Apple (NASDAQ:AAPL). Companies have also turned to Twitter in a big way as a way to connect with consumers. In the last Super Bowl, 45% of the ads displayed Twitter hashtags to fuel discussions about their commercials.

    Okay, let's get into some facts and figures. The company has more than 215 million monthly active users and generates most of its revenue from selling ads. 75% of those users reportedly access Twitter through mobile, with mobile accounting for 65% of ad revenues. It sells ads for $0.80 (as of 2Q13) per 1,000 views. Ads are 85% of revenues in total, while Data Licensing is the other 15%. Data Licensing consists of historical tweet data that companies can buy for a period of time to analyze - the company expects that to decline as a percentage of revenue over time. In total Twitter generated $316.9 million of revenue in 2012, a 198% increase over 2011.

    As far as its cost structure, as of 2Q13 its biggest expense was R&D at 46.1% of revenues, consisting mostly of salaries for engineers, designers and other tech workers. Cost of goods sold is 36.3% of sales, and includes servers, bandwidth, energy and maintenance for its data centers among other things. Sales and marketing is 32.5% of sales, while general & administrative costs are 13.0% of sales. As of now the company continues to run at losses, and for 2012 it posted a $79 million net loss. However, Twitter also gave out figures for adjusted EBITDA, which strips away stock-based compensation, depreciation and some other costs. Adjusted EBITDA for 2012 was +$21.2 million.

    Second Quarter 2013

    Twitter's financials were complete with the latest quarterly results as well for 2Q, so let's analyze some of those numbers.

    * Revenues +105% y/y and +21.8% q/q to $139.3 million
    * Timeline views +68.7
    * Revenue/1,000 views up to $0.80 from $0.64

    * Gross margin improved all the way from 55.1% to 63.7% y/y
    * G&A costs sank from 25.5% of sales to 13.0% y/y as the company sees economies of scale over its fixed costs.
    * However, the company has also been beefing up its employee base to deal with its growth, so R&D was up from 40.2% of sales to 46.1% and Sales & Marketing was up from 28.9% to 32.5%
    * Net loss of $42.2 million, with adjusted EBITDA of +$9.65 million

    No doubt Twitter continues to see explosive revenue growth, with the latest sales figures more than doubling year over year. The company does continue to run at a net loss, which isn't unusual for a relatively new tech company like this, but you can see it growing into its cost structure with gross margin and G&A improving significantly.

    Unfortunately I can't recommend a buy or a sell on TWTR since it hasn't been given a value yet, that will be up to Goldman Sachs and a few others who are managing the IPO. Hopefully they don't take the route of Facebook (NASDAQ:FB) and Morgan Stanley, who grossly inflated the value of the stock in an effort to milk as much money as they could from the largely over-hyped public interest. Certainly though the future only looks brighter for Twitter. In the event that this one does get overvalued for its market debut (although TWTR management reportedly so far sounds more level-headed than the folks over at Facebook) this is looking like a stock that, like Facebook, should be able to pull higher over time if you could stomach or avoid the initial drop.

    David Urani (@DavidUrani)


    Stocks: TWTRQ, FB, AAPL
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