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

Twitter Inc (NYSE:TWTR) is a provider of online social networking and microblogging service that proffers a platform for public self-expression and conversation in real time. Various products and services offered by the group allow users to consume, create, distribute, and discover content; and among key features offered is Periscope, which is a mobile application that enables user to broadcast and watch video live with others.

Decent Second Quarter 2018 Performance: TWTR in the second quarter of FY 18 has reported the adjusted earnings per share of 17 cents, which is in line with the analysts’ estimates for the adjusted earnings per share of 17 cents, according to consensus evaluation. The company had reported the adjusted revenue growth of 24 percent to $711 million in the second quarter of FY 18, beating the analysts’ estimates for revenue of $696.2 billion. Meanwhile, during the second quarter 2018, advertising revenue grew 23% to $601 million, total ad engagements rose 81% year-over-year and cost per engagement (CPE) fell 32% year-over-year. Further, in the second quarter, data licensing and other revenue grew 29% to $109 million, US revenue grew 10% to $367 million and International revenue rose 44% to $344 million year-over-year. During the second quarter 2018, TWTR delivered non-GAAP net income of $134 million compared to $56 million in the same period of the previous year, which represents a non-GAAP net margin of 19%. For the second quarter, non-GAAP expenses rose 13% to $547 million on year-over-year. The company has reported the adjusted EBITDA of $265 million for the second quarter of FY 18 compared to $178 million in the same period of the previous year, which represents an adjusted EBITDA margin of 37%.


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

MAUs better than estimate during the second quarter 2018: The company has posted Monthly active users (MAUs) of 335 million in the second quarter, which is close to many market estimates. However, MAU is less than what TWTR reported for the previous quarter of 336 million driven by the impact from decisions the company made to not move to paid SMS carrier relationships in certain markets where the users have better access to TWTR or Twitter Lite, making changes by the company to improve the "health" of the platform and some impact from GDPR, which is a set of regulations in the European Union intended to protect consumer data. Furthermore, for the second quarter 2018, the company has posted the average US MAUs of 68 million which is same as that reported in the corresponding period of the previous year and compared to 69 million in the previous quarter. The company’s average international MAUs were 267 million for the second quarter compared to 258 million in the same period of the previous year and compared to 267 million in the previous quarter. On the other hand, TWTR’s average daily active users (DAU) rose 11% year-over-year, compared to 10% year-over year growth in Q1, which reflects another quarter of double-digit year-over-year growth.

Monthly Active Users  (Source: Company Reports)

Strength Within Niches: TWTR’s strength is from its presence in social media niches as it has long remained the platform of choice for celebrity figures. The company has now expanded to other niches such as high school football and the Overwatch League. In recent quarters, the company has made several major deals to stream live sports content on its platform. Lately, the company completed a new deal with Blizzard Entertainment’s Overwatch League to stream esports video gaming content through the end of 2019. This deal will comprise of a live weekly highlight show and near real-time video highlights of every match of the regular season, playoffs, Grand Finals and All-Star Weekend. Previously, the company joined hands with esports streaming partners such as Activision’s Call of Duty World League and ESL. The global esports economy is expected to grow by 38 percent in 2018 to $905.6 million, and the global esports audience is expected to reach 380 million this year; and this will be a boost to the current partnerships. North America accounted for just 13 percent of the global esports audience in 2017, while Asia had represented 51 percent of viewers (as per market estimates). With this backdrop, TWTR is investing on streaming content which is expected to increase its subscriber numbers and engagement, but the company’s second-quarter earnings report revealed that user growth has not grown much. Meanwhile, TWTR has made content agreements with Major League Baseball, Major League Soccer, the All England Tennis Club, the Canadian Football League and the National Women’s Hockey League. The company felt that the ability for the people to have a live video and share it with their followers, their friends, to have a conversation around a particular aspect of what they saw during an event, will involve a lot of network effects so TWTR is creating a lot more network effects and dynamics to get more people into the event and to get more people into the video stream through their platform. The company is looking for growth through this medium. The company has already tested the generalized event infrastructure at scale with the World Cup.

Outlook: For the third quarter 2018, TWTR expects adjusted EBITDA to be in the range of $215 million and $235 million and adjusted EBITDA margin is expected to be in the range of 33% and 34%. The stock-based compensation expense is expected to be in the range of $85 million to $90 million. For FY 2018, TWTR expects the stock-based compensation expense to be in the range of $300 million to $350 million, down from a range of $350 million to $450 million previously expected. FY 18 capital expenditure is expected to be in the range of $450 million and $500 million, up from a previous forecast of $375 million to $450 million.


EBITDA Scenario (Source: Company Reports)

Chief Executive, Jack Dorsey to testify before U.S. House of Representatives committee in September: TWTR stock is witnessing some volatility as Chief Executive, Jack Dorsey is to testify before a U.S. House of Representatives committee on September 05, 2018. Primarily, concerns were raised by Republicans about social media companies on removal of content from conservatives from the site. CEO of TWTR will thus be questioned about content monitoring and policing by the House of Energy and Commerce Committee. The key aspect to be seen is that how the group is protecting integrity without eliminating large numbers of conservatives. Recently, President Donald Trump had accused social media companies of silencing people through an act blocking accounts but this move was not accompanied by any key support. The U.S. has taken a hard view on social media outlets on totally discriminating against Republican/ Conservative voices. This has come under the purview of curbing the right to free speech under the First Amendment of the U.S. Constitution. Meanwhile, TWTR had removed about 70 million accounts in May and June, however, it was clarified that most of those accounts were inactive on the platform for 30 days or more as per the chief financial officer of the company, Ned Segal.

Stock Recommendation: TWTR has successfully created a niche around celebrity engagement and also expected to succeed by combining the power of microblogging with sporting events which is ignored by larger players. This exciting player in Technology space has a decent narrative with improving financial metrics. Rebound in gross margins and better average revenue per user is noted while user base expansion has to be managed. The company makes an investment which could give benefit for a longer term. The company prioritizes the investments in order of health, audience and engagement, the ad products and sales. Group’s ROE for June 2018 has improved to 1.9% from 1.2% as at March 2018. We give a “Buy” recommendation at the current price of $ 35.35 given the lower levels and the ongoing performance.


TWTR Daily Chart (Source: Thomson Reuters)

 
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