Company Overview: Twitter, Inc. offers products and services for users, advertisers, developers and data partners. The Company's products and services include Twitter, Periscope, Promoted Tweets, Promoted Accounts and Promoted Trends. Its Twitter is a platform for public self-expression and conversation in real time. Periscope broadcasts can also be viewed through Twitter and on desktop or mobile Web browser. Its Promoted Products enable its advertisers to promote their brands, products and services, amplify their visibility and reach, and extend the conversation around their advertising campaigns. Promoted Accounts appear in the same format and place as accounts suggested by its Who to Follow recommendation engine, or in some cases, in Tweets in a user's timeline. Promoted Trends appear at the top of the list of trending topics for an entire day in a particular country or on a global basis. Its MoPub is a mobile-focused advertising exchange. Twitter Audience Platform is an advertising offering.


TWTR Details

Online news and social networking service company, Twitter Inc (NYSE: TWTR), seems to be regaining its fizz lately with few rulings going in favor of the group, high profile deals, addition of new features to the platform (including the ones relating to new night mode and following hot topics), and efforts in the direction of data privacy. Group’s Return on Equity has improved since 2017 and now sits at 1.2% (as at March 2018), which is above the industry median of 0.9%.

High profile deal with Disney: Twitter Inc (NYSE: TWTR) has joined hands with Disney and announced an agreement for developing live content and advertising opportunities based on Disney’s content on the TWTR platform. This would be a key driver for TWTR’s usage improvements. This opens the platform to be evaluated by other partners as well for various opportunities. While the impact is yet to be quantified, we expect the needle to move in favor of TWTR as over 50% of its advertising revenue comes from video opportunities.

Shutting down its TV apps: Twitter stock was slightly impacted in premarket trading after the company announced that it is shutting down its TV apps on Roku, Android TV and Xbox starting May 24, 2018. TWTR is currently trying to steer its users to its first-party mobile apps and its desktop website by killing off apps used by a minority of its user base like the Twitter for Mac app the company had shut down earlier this year. Very recently, the company has attempted to kill off popular third-party Mac apps with a series of unfriendly API changes. Therefore, TWTR has shuttered a number of apps that aren’t used by a majority of users. There is speculation that the company is taking these actions to increase its efficiency. To support a large number of apps, especially when the vast majority of users, flock to only certain ones, can be costly for companies like TWTR to manage. On the other hand, ruling by the Manhattan Federal Court Judge Naomi Buchwald that Trump’s Twitter account is a designated public forum holds back President Trump from blocking Twitter users from viewing his prolific feed. This boosted the stock a bit.
 

Growth in DAU (Source: Company Reports)

Better than expected first-quarter 2018 earnings: TWTR in the first quarter 2018 has delivered better than expected results due to increased advertising revenue to its rising profits and strong growth overseas as the U.S. gets saturated. The company has swung to a profit during the first quarter of the year, which is its second profitable quarter ever after a strong finish last year. The company has posted for the first quarter of 2018, the earnings per share of 16 cents per share, which is 4 cents better than the analysts’ estimates. The revenue grew sharply to $664.9 million from $548.3 million, due to a 53 percent jump in international revenue. The performance easily beat the $609.9 million in revenue that analysts projected. Moreover, the monthly active users in the U.S. grew by 1 million from the fourth quarter to 69 million. Internationally, MAUs grew to 267 million users from 262 million. The revenue in the U.S. increased 2 percent year-over-year. TWTR said that its daily active users (DAUs) rose 10 percent in the recent period, marking the sixth consecutive quarter of double-digit increases. The average monthly active users (MAUs) were 336 million for the first quarter, which is an increase of 3% year-over-year and an increase of 6 million compared to 330 million in the previous quarter. Overall, the company in the first quarter has posted the non-GAAP net income of $123 million compared to a quarterly non-GAAP net income of $53 million for the same period last year. Meanwhile, as a result of the 2017 Tax Cuts and Jobs Act, the blended US federal and state statutory tax rate used to calculate the company's reported non-GAAP provisions for income taxes decreased from 37% to 24% beginning in Q1 2018. Approximately $21 million of the $70 million year-over-year increase in non-GAAP net income resulted from this change.

Strategic priorities yielding results: The company has posted the adjusted EBITDA of $244 million or 37% of total revenue, compared to $170 million or 31% of total revenue for the same period last year. Additionally, for the first quarter 2018, TWTR grew its total revenue 21% year-over-year and owned-and-operated advertising revenue 28% year-over-year, due to the continued audience growth, differentiated ad product features, improved ROI, and better sales execution. This led to strong revenue performance that drove better than expected profits and GAAP net margins of 9%, reflecting the company’s continued prioritization and disciplined execution across the strategic priorities.
 

GAAP Net Income (Loss) (Source: Company Reports)

Boost to TWTR brand: TWTR is positioning their site as the place to find out about live events from news to concerts. The awareness of TWTR’s brand has also helped in getting a boost from frequent tweets by public figures like U.S. President Donald Trump, who is among the platform’s most high-profile users. The global events like the Olympic games and government elections also help to drive user growth. Moreover, Twitter has worked to root out terrorist content and abusive trolls.

Cambridge Analytica scandal: TWTR confirmed that it sold data access to the Cambridge University academic who also obtained millions of Facebook Inc. users’ information which was later passed to a political consulting firm without the users’ consent. TWTR’s Dorsey had to follow in the footsteps of Facebook CEO Mark Zuckerberg and testify before Congress about data privacy. Twitter, Facebook and Google have been facing calls for potential regulation on internet companies after revelations that political consulting firm Cambridge Analytica harvested private data from some 87 million Facebook users. TWTR itself was found to be overrun by Russian bots during the 2016 U.S. election cycle. In a way, the social media companies have come under intense scrutiny after the reports that Facebook failed to protect the privacy of its users. However, the companies like Twitter tend to have access to less private information than Facebook. Moreover, TWTR has now banned Cambridge Analytica ads from the platform. In addition, Twitter now aims to have new labels designated to the accounts of political candidates in the upcoming 2018 elections in order to prevent creation of fake accounts.

Continues to address criticism: TWTR has not done enough to fight the spread of misinformation, harassment and manipulation from automated posts and the company continues to address criticism. TWTR’s Dorsey had asked the public to propose solutions to make the social network a better place by measuring "collective health, openness, and civility of public conversation”. The company is working on a "transparency center" to show how much political campaigns spend on advertising, and the company endorsed the Honest Ads Act, a Senate bill that would subject online political ads to the same sort of disclosure rules that govern similar content on TV and radio. Further, TWTR has limited the ability of users to perform coordinated actions across multiple accounts, which had resulted in approximately 90% fewer users creating fake or automated engagement through the social media dashboard TweetDeck. The company in the first quarter, had removed more than 142,000 applications connected to Twitter that violated developer rules and were collectively responsible for more than 130 million "low quality" tweets during the same period.


Revenue by Geography (Source: Company Reports)

Future Outlook: TWTR for the second quarter expects the adjusted earnings before interest, taxes, depreciation and amortization to be in the range of $245 million to $265 million, against analysts’ expectations of about $218 million. For the second quarter 2018, the adjusted EBITDA margin is expected to be between 37% and 38%. The stock-based compensation expense is expected to be in the range of $85 million to $95 million in Q2 2018. Moreover, for the FY 18, TWTR expects the stock-based compensation expense to be in the range of $350 million to $450 million and the capital expenditure is expected to be between $375 million and $450 million.Meanwhile, the company had indicated that its revenue growth will slow-down a bit as it would be difficult for the company to produce growth rates in the second half of the year that top those of 2017, when a broad-based recovery begins. Therefore, the company expects the revenue growth will resemble that of prior year.

Stock Recommendation: The online news and social networking service company swung to a profit during the first quarter of the year, which is its second profitable quarter ever after a strong finish last year. Further, advertisers’ perceptions of the platform are also improving. As a result, TWTR stock rose up over 84% in last one year, as at May 23, 2018. The company’s video ad product continues to perform well as advertisers continue to look for higher quality online video impressions. Moreover, TWTR has also introduced a new framework to think more cohesively about the issues affecting the company’s service, including information quality and safety. This holistic approach will help the company more effectively address the challenges. We give a “Buy” on TWTR at the current price of $ 33.42 (up 1.7% on May 23, 2018), ahead of the Twitter 2018 Annual Meeting of Stockholders scheduled for May 30, 2018.
 

TWTR Daily Chart (Source: Thomson Reuters)

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