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- Twitter has plenty of growth levers to pull that will drive revenue significantly higher.
- The logged-out audience total pushes the total consumers of Twitter data towards 800 million monthly visitors.
- Twitter has a lower forward PS ratio than other Internet giants, suggesting a better value proposition than most think.
How Twitter Became, By Definition, A Fan Favorite Stock
- Twitter will continue to differentiate itself away from Facebook.
- The stickiness of Twitter is mostly driven by how it's an alternative platform to Facebook that's more brand and celebrity friendly.
- Given the growing amount of content from famous public figures, and the sheer penetration into this demographic, Twitter's longevity is more or less guaranteed.
- Twitter also offers significant advertising potential, as it is a relevant tool for users when buying products and services.
- Advertisers can pursue a multitude of strategies on Twitter to drive advertising efforts like celebrity endorsements, brand-centric pages, and customer interaction to drive earnings growth.
- Aggressive traders may fancy Twitter stock as an obvious short candidate. Twitter, as a publicly traded corporation, has yet to turn a profit.
- The low interest rate environment has fueled the second coming of "irrational exuberance" in Web 2.0 stocks.
- Twitter short sellers would be exposed to a short squeeze and staggering losses if the social media company were to actually turn a profit over the next year.
- TWTR's investor day was uninspiring with bullish guidance and optimistic outlook.
- 60k ad customers makes me question the value of TWTR to a typical SME customer.
- Focus on core upgrade is positive, but better execution is needed.
Twitter Has A Compelling Ten-Year Growth Trajectory
- Twitter will drive revenue growth through ad load increases, higher levels of ad engagement, growth in active users and additional business opportunities.
- The company offers a scenario where revenue reaches $14 billion in 2024.
- After factoring long-run cost assumptions, net income will exceed $2.2 billion in 2024.
- Over the next ten-years the stock will grow into its admittedly high valuation.
- I estimate that by 2024, Twitter's market cap (conservatively speaking) will exceed $56 billion.
- Standard & Poor's rates Twitter debt as speculative.
- The stock remains a Strong Buy.
- While a speculative rating on the debt wasn't anticipated in the original thesis, the long-term potential of the stock is not altered by this move.
- S&P issued a double-B minus credit rating for Twitter.
- Double-B minus is three notches into non-investment grade territory.
- If Twitter's credit rating is three notches into junk territory, what does that say about the stock?
Twitter Remains The Most Misunderstood Company In Tech
- Twitter is not a social media company; it is a mobile advertising company.
- Twitter has invested heavily to deliver tools that let developers understand and monetize apps.
- Twitter has huge ambitions for growth it is on track to meet.
Mobile Is Twitter's Story... And Twitter's Story Is Mobile
- As its recent earnings report and Wednesday's Analyst Day proves, Twitter's story begins and ends with mobile engagement.
- However, a focus on MAU and user growth has weighed on the stock, despite the great story on mobile.
- Twitter needs to steal ad dollars from Google and Facebook; that's the story investors should pay attention to.
- Facebook and Twitter may go through a period of consolidation.
- This is healthy, as the two stocks have seen significant runs.
- Fundamentally the two businesses are solid and have meaningful growth prospects going forward.
- However, the short term has been unpredictable, therefore investors have to buy-in with an ownership mentality.
Update: Twitter Q3 Earnings Re-Rate Market Expectations
- TWTR posted in-line EPS and beat on the top line, but shares crumbled.
- The selloff wasn’t expected, but we note that TWTR is still a long-term play.
- We didn’t see the miss coming but are encouraged by the company’s new commitment to provide realistic guidance.
- Earnings projections came in as expected, except revenue projections for the fourth quarter, which were below Wall Street projections.
- The P/S ratio and P/B ratio are far too high, showing overvaluation in this stock.
- The business model is flawed. Advertising revenues will level off soon.
- After the closing bell, Twitter reported earnings for Q3, coming in at $0.01 and meeting the Wall Street estimate.
- Revenues came in stronger than expected at $361M, above the Estimize consensus of $360.7M and the Wall Street consensus of $351.8M.
- Average Monthly Active Users (MAUs) came in at 284M for the quarter, a 23% increase from Q3 2013.
Update: Twitter's Q3 Was Still Encouraging For Long-Term Investors
- Twitter reported strong momentum in Q3 2014 in terms of revenue and earnings.
- User additions displayed modest growth but missed market expectations.
- I continue to remain positive on Twitter and maintain the stock in my growth portfolio.
Why Twitter's Opportunity May Be Smaller Than You Think
- Twitter's intrinsic value is based on what it will look like 10-20 years from now.
- Quarterly results are largely irrelevant for Twitter, but it continues to speak of a company that is struggling to generating GAAP profits.
- Twitter is one of the riskiest firms in our coverage.
- We're sticking with our $33 fair value estimate of shares.
Update: Twitter Q3 2014 Earnings - Advertising Revenue Grew Significantly
- Twitter’s third quarter advertising revenue came in at $320 million, up 109% year-on-year.
- In our original article, we said that Twitter will gain significantly in terms of advertising dollars.
- Since our expectation came true in the third quarter, we continue to remain bullish on Twitter.
Fri, Nov. 21, 10:42 AM
- Twitter (TWTR +0.5%) CEO Dick Costolo's family trusts sold 283.5K shares (half their holdings) in transactions on Nov. 3 and 17. Following the sales, Costolo directly owns 36K Twitter shares and 283.5K via the trusts, along with 509.8K restricted stock units.
- Costolo previously sold 17K shares in July, and 20.1K in October. On Nov. 3, he disclosed entering into a 10b5-1 trading plan. Other Twitter execs sold share following the company's May lockup expiration.
- The WSJ ran a less-than-glowing column on Nov. 6 regarding Costolo's management style, and the investor pressure he's facing to boost user growth/engagement. A slew of product changes were unveiled the following week at Twitter's analyst day, as were aggressive growth targets.
Thu, Nov. 13, 3:56 PM
- S&P has assigned Twitter (NYSE:TWTR) a BB- debt rating, with a stable outlook. The rating comes two months after Twitter raised $1.8B through a convertible debt offering.
- S&P: "The company is investing very aggressively in growth. Depending on the level of business reinvestment, Twitter may not generate positive discretionary cash flow until 2016." However, the firm also thinks Twitter will "continue to experience very strong growth and not encounter a significant increase in competitive pressure."
- Meanwhile, the sell-side has provided mostly positive reactions to yesterday's big analyst day product announcements and sales growth targets, albeit without issuing any upgrades. "We think management delivered in a watershed moment for the company," proclaims SunTrust (Buy).
- Janney (Buy) is upbeat about Twitter's effort to boost sign-ups and grow video ad sales. "Although investors should still be somewhat skeptical, the details on new products and initiatives are encouraging and lead us to be incrementally optimistic."
- RBC (Sector Perform) notes Twitter boosted its long-term EBITDA margin target range to 40%-45% from the 35%-40% provided at IPO time. It was also "impressed by the quality and detail of [Twitter's] presentations," but adds execution remains a question mark. Cowen (Market Perform): "While the new targets are thoughtful in our view, they also strike us as aspirational."
Wed, Nov. 12, 3:32 PM
- During its analyst day, Twitter (NYSE:TWTR) showed off a slide suggesting the company, which only this year reached $1B/year in revenue, is aiming to be at $5B/year by 2018, $10B/year by 2022, and $14B/year by 2024. The chart references the rapid growth seen by Google, Facebook, Tencent, and others in the years after they crossed the $1B threshold.
- Twitter has also previewed several more features on top of the headline-grabbing ones mentioned by Dick Costolo. Among them: 1) A "While you were away" feature that uses algorithms to surface popular/interesting tweets published since the last time a user logged in. 2) Location-based content curation. 3) Push notifications for breaking news. 4) In-app video capture/uploading. 5) Curated timelines for following live events.
- Shares have crossed $42. Volume is up to 46M, well above a 3-month average of 29M.
Wed, Nov. 12, 12:54 PM
- "We want to deliver an instant timeline for new users - no need to follow accounts when you sign up," embattled CEO Dick Costolo states during Twitter's (NYSE:TWTR) analyst day (webcast), trying to address user growth concerns. He also promises Twitter will "add significant functionality to private messaging" in Q4, as it tries to counter the massive growth seen by various mobile messaging platforms.
- Costolo adds Twitter is open to launching new standalone apps for services such as Vine - Mark Zuckerberg would approve. He declares the company has 500M+ users/content viewers who aren't logged in, putting a number on what he has repeatedly called a major opportunity (though some still have doubts).
- Along the same lines, CFO Anthony Noto says Twitter is focused on further syndicating its content, and that its opportunity goes well beyond users who tweet. He also reiterates Twitter remains interested in creating new data products (previous), in addition to content.
- Shares have jumped in the wake of Costolo and Noto's remarks.
Fri, Nov. 7, 11:30 AM
- Current and former Twitter (TWTR -1.9%) employees describe CEO Dick Costolo as "a reactive thinker who bounces from one idea to the next," the WSJ reports in a column going over rising investor pressure on Costolo amid slowing user growth and near-constant executive shakeups.
- While Costolo is still deemed well-liked by many Twitter employees, his "sudden, often unexplained, decisions" are said to have "confused and frustrated executives higher up in the ranks, sometimes throwing strategy off course or hurting morale."
- Costolo's 2012 promotion of Michael Sippey (a friend) to run Twitter's product team is cited as a move that backfired - the WSJ states "poor communication and indecision plagued the product team" under Sippey, who left Twitter two months after its IPO.
- More recently, Costolo reportedly decided Twitter should describe itself as having three "geometrically eccentric circles" of users - those who are logged in, those who aren't logged in but visit the site, and those who only saw Twitter content on other sites - rather than just its logged-in base. The apparent goal: To counter adverse comparisons to Facebook, which has 5x as many active, logged-in users.
- Shares are near $40, and down 18% from where they traded before the Q3 report.
Mon, Nov. 3, 10:40 AM
- Morgan Stanley's Benjamin Swinburne: "Twitter’s (TWTR -1.7%) global MAU growth has reflected a slower pace of adoption than expected, and we forecast net adds decelerating in ‘15/16E. Focus has shifted to monetizing logged-off visitors, but the opportunity likely reflects a marginally less engaged consumer of Twitter’s content."
- Swinburne, who has set a $42 target, does admit Twitter's monetization of registered users has been growing rapidly. But he also calls expectations the company will narrow its monetization gap with Facebook "optimistic" in light of differences in both time spent and ad sales approaches.
- Twitter is six days removed from seeing a major post-earnings selloff, one that was followed by news two engineering execs are leaving and the company's consumer products chief has been demoted.
- SunTrust's Robert Peck is reiterating a Buy today, but also declares Twitter's Nov. 12 analyst day will be a "watershed moment." Among other things, he's looking for details on Twitter's strategy for boosting MAU growth, stabilizing Timeline views per MAU, and tapping new revenue streams..
Thu, Oct. 30, 4:58 PM
- Daniel Graf, hired away from Google only in April - he was in charge of Google Maps - will no longer run Twitter's (NYSE:TWTR) consumer product team. The WSJ reports he'll now "focus on certain strategic initiatives, starting with geo and location features."
- Kevin Weil, Twitter's 31-year-old head of revenue (i.e. ad) products, will now be in charge of consumer products as well. He'll be Twitter's fifth product lead in five years.
- Yesterday, CNBC reported engineering VP Jeremy Gordon and analytics chief Adam Kinney are leaving, while adding "some in the engineering organization are not clear about where [CEO Dick Costolo] and engineering executive Alex Roetter are leading."
Wed, Oct. 29, 4:56 PM
- CNBC reports Twitter (NYSE:TWTR) engineering VP Jeremy Gordon and analytics chief Adam Kinney are leaving. Gordon has confirmed his departure.
- CNBC adds "some in the engineering organization are not clear about where [CEO Dick Costolo] and engineering executive Alex Roetter are leading." Peter Thiel might smile at that passage.
- Twitter saw COO Ali Aowghani resign in June, a move that reportedly stemmed from Costolo's wish to take over product development amid concerns about slowing user growth. Twitter's Q3 numbers reinforced those concerns.
- Like Facebook after its IPO, Twitter has seen a healthy amount of executive turnover during the last 12 months.
- Earlier: Twitter strikes analytics partnership with IBM
Wed, Oct. 29, 12:10 PM
- The partnership will allow businesses to "incorporate Twitter (TWTR -2.1%) data into their decision-making through an established set of IBM (IBM +0.1%) tools, solutions and consulting services." (PR)
- IBM plans to "offer Twitter data as part of select cloud-based services, including IBM Watson Analytics," and allow 3rd-party developers to integrate Twitter data into services they're creating via IBM's cloud app platform (PaaS) offerings.
- The first joint solution will involve IBM's ExperienceOne customer engagement software/services. Eventually, the companies will offer "solutions for specific industries such as banking, consumer products, retail, and travel and transportation."
- Twitter: "While companies have long listened to what their customers are saying on Twitter, complex enterprise decisions often require input from a lot of different systems. IBM’s expertise is in integrating complex systems and data to make better decisions."
- While IBM's total revenue fell 4% Y/Y in Q3, its business analytics revenue was up 8%; Big Blue has made a string of acquisitions to bolster its analytics portfolio.
- No details are given on the revenue Twitter will receive for providing its data. Twitter's data licensing/other revenue rose 171% Y/Y in Q3, and made up 11% of total revenue.
Tue, Oct. 28, 6:38 PM
- Facebook beat Q3 estimates, but provided Q4 revenue guidance that was slightly below consensus at the midpoint.
- Twitter (NYSE:TWTR) -1.7% AH; shares fell 9.8% in regular trading due to yesterday's Q3 results and guidance.
- LinkedIn (NYSE:LNKD) -1.6%. Pandora (NYSE:P) -1.2%. YELP -1.6%. Zillow (NASDAQ:Z) -1%.
- Many of the same names sold off after Netflix and eBay's earnings two weeks ago.
Tue, Oct. 28, 12:46 PM
Tue, Oct. 28, 9:13 AM
Tue, Oct. 28, 7:51 AM
- "Our [bull] thesis on the stock was based on: 1) revenue upside from new ad formats, 2) improving MAU trends from product changes, and 3) opportunity to convert or monetize non-logged in users," says BAML analyst Justin Post, downgrading Twitter (NYSE:TWTR) to Neutral with price target trimmed to $50 from $60. While earnings call commentary suggests this opportunity still exists, says Post (noting the 11/12 analyst day as maybe providing more color), Q4 guidance suggests the ramp won't be as consistent or fast as expected.
- "We continue to believe we are in the early stages of a very long growth cycle for Twitter as it leverages cultural ubiquity and invests in product and technology to grow the platform," says Goldman analyst Heath Terry, maintaining his Buy rating and cutting the price target to $60 from $63. Terry tweaks his models to reflect slightly slower MAU growth, but greater than expected operating expense leverage.
- Also downgrading Twitter are Nomura and Stifel Nicolaus.
- Sticking with their previous bull/neutral stances are Deutsche, Evercore, Janney, BMO Capital, Susquehanna, and Cowan.
- Last night's earnings coverage
- Shares -14.3% premarket
Mon, Oct. 27, 6:30 PM
- Twitter (NYSE:TWTR) is now trying to provide accurate (i.e. non-sandbagged) guidance, and thus investors shouldn't count on a beat, CFO Anthony Noto stated on the CC. That isn't putting investors at ease after Twitter offered a Q4 sales outlook whose midpoint was below consensus.
- On the flip side, Noto reiterated Twitter's ad load is still well below that of rivals, and could be significantly increased if the company wished. CNBC observed Twitter's ad ARPU ($1.12 in Q3) remains well below Facebook's ($2.06 in Q2).
- International MAU growth was affected by challenges in authenticating Asia-Pac users; Twitter doesn't say whether the issue will continue. 10M of the 13M MAUs added in Q3 were from international markets.
- Q3 sales received a boost from new ad formats such as app install ads (a Facebook staple) and Promoted Videos. CEO Dick Costolo says there aren't any near-term plans to monetize Vine's 6-second video platform. On the other hand, he's confident Twitter can find ways to monetize logged-out users (estimated to be 2x-3x the logged-in base).
- Timeline views per MAU are expected to be flat Y/Y in Q4. Twitter insists this is due to changes that improve the user experience, and which reduce views along the way.
- TWTR -10.7% AH. Q3 results, details.
Mon, Oct. 27, 5:40 PM
Mon, Oct. 27, 4:30 PM
- Twitter (NYSE:TWTR) averaged 284M monthly active users (MAUs) in Q3, +5% Q/Q and +23% Y/Y; Q2's Q/Q growth was 6%. Timeline views +5% Q/Q and +14% Y/Y to 181B; 10% Q/Q growth was seen in Q2 (thanks partly to the World Cup). Mobile MAUs were ~80% of total MAUs.
- Ad revenue +109% Y/Y to $320M; 129% growth was seen in Q2. Data licensing/other revenue +171% to $41M. 34% of revenue was international, up slightly from Q2's 33%.
- Ad revenue per 1K Timeline views rose to $1.77 from $1.60 in Q2 and $1.44 in Q1. Mobile was 85% of ad revenue, up from Q2's 81% and Q1's 80%.
- GAAP costs/expenses (inflated by $170M in stock compensation expenses) +125% to $522.7M. R&D spend totaled $183.3M, and sales/marketing spend $164M.
- Full-year adjusted EBITDA guidance has been hiked to $260M-$265M from $210M-$230M. Capex guidance has been narrowed to $360M-$390M from $330M-$360M.
- The Q4 guidance (midpoint below consensus) contrasts sharply with the above-consensus Q3 guidance provided in July.
- TWTR -9.4% AH. Q3 results, PR.
TWTR vs. ETF Alternatives
Twitter Inc is a global platform for public self-expression and conversation in real time. It provides a way for people to stay informed about their interests, discover what is happening in their world and interact directly.
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