Twitter Inc

Twitter Inc (NYSE: TWTR) provides services and products for developers, data partners, users and advertisers. Its Twitter is a platform for real-time conversation and public self-expression.

Investment Rationale for Valuation – Hold at USD 62.52

• In Q2 FY2021, monetizable daily active users rose 11% YoY for TWTR.
• In Q2 FY2021, TWTR introduced new subscription and paid features on its Twitter platform.
• On the profitability front, TWTR’s net margin since Q4 FY2020 has been higher than the industry median of 3.6%.
• On the liquidity front, TWTR’s current ratio in Q2 FY2021 has been higher than the industry median of 3.48x.
• From a technical standpoint, the 14-day RSI at ~33.97 is close to the oversold zone, indicating a potential uptick in the stock price in the near term.

Key Risks

• There is significant competition for advertiser spend. TWTR has to compete against traditional media outlets and mobile and online businesses to grow its revenues.
• There is a recent claim that TWTR benefitted from child sex trafficking. It could tarnish the Company’s reputation.
• Spam and fake accounts could affect user experience on the Twitter platform. It could damage the reputation of TWTR.

.Financial Highlights (for three months ended 30 June 2021 (Q2 FY2021), as of 27 July 2021)

(Source: Company Website)

• Driven by a broad increase in advertiser demand, revenue in Q2 FY2021 surged ~74.2% YoY.
• It resulted in a net income of USD 65.6 million in Q2 FY2021 from a net loss of USD 1,378 million in Q2 FY2020.
• Also, the number of monetizable daily active users surged ~11% YoY as per the management.
• The impressive growth in bottom-line led to cash position surging dramatically by ~107.5% YoY in Q2 FY2021.

One Year Share Price Chart

(Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative) 

Conclusion

In Q2 FY2021, TWTR experienced significant YoY revenue growth of ~74.2%. Its number of monetizable daily active users also rose during the quarter. For FY2021, the management expects the revenue to grow faster than expenses. With substantial liquidity, the Company is ready for growth and weather any further adverse impacts. The stock made a 52-week low and high of USD 38.10 and USD 80.75, respectively.

Based on the introduction of new subscription and paid features by the Company, its favourable profitability and liquidity than the industry, and support from valuation as done using the above method, we have given a “HOLD” recommendation on Twitter Inc at the closing market price of USD 62.52 (as of 20 August 2021), while we would revisit our stance based on further corporate announcements by the Company.

Romeo Power Inc

Romeo Power Inc (NYSE: RMO) was formerly known as RMG Acquisition Corp. It delivers large-scale electrification solutions for commercial applications.

Investment Highlights – Avoid at USD 4.29

• The Company made a loss from operations in Q2 FY2021.
• A class-action lawsuit has been filed against the Company.
• In Q2 FY2021, RMO’s cash position declined ~84.9% compared to FY2020.
• On the profitability front, RMO’s net margin in Q2 FY2021 has been lower than the industry median of 9.5%.
• From a technical standpoint, the stock price is sustaining below the 20-day EMA of about USD 6.08. Hence, there could be a correction in the stock price in the near term.

One Year Share Price Chart

(Source: Refinitiv, Analysis done by Kalkine Group)

Conclusion

Based on its loss-making operations and reduced liquidity, we have given an "AVOID" stance on Romeo Power Inc at the closing market price of USD 4.29 (as of 20 August 2021).

*The reference data in this report has been partly sourced from Refinitiv.

*All forecasted figures and Peer information have been taken from Refinitiv.

Disclaimer

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