Innovation, Partnerships and Acquisitions Drive Strong User Growth, Advertising and Data Licensing Revenues – Globally Diversified Business Model Offers Solid Upside Potential
Q4 2014 revenue up 97% to $479.1 million on strength in online advertisement revenues
288 million quarterly monthly active users sending over 500 million tweets per day
Recent acquisition of live video streaming app Periscope pushes shares up
Twitter, Inc. (NYSE: TWTR) operates the popular eponymous ‘twitter’ social media platform that connects millions of people across the globe for conversation, debate and information sharing. Twitter is available on laptops, desktops and mobile devices and can by synched across all three platforms. The popular social media app is available globally in over 33 languages and has a whopping 288 million active users. While Twitter is popular with individuals, it has also become a go to application for business owners, with promoted tweets, promoted accounts and promoted trends that help the company attract advertisement, services and analytics revenues. Through acquisitions and partnerships, Twitter now offers its customers the ability to tweet, listen to music, upload live video, play short video clips and purchase concert tickets – all through one interface.
Shares Up 42% YTD as Company Reinvents Social Media Experience and Relevance
Since going public at $26 per share in November 2013, Twitter shares at $50.82 (as of market close on April 24, 2015) are up 95%, and up 13% from their IPO opening price of $45.10. Shares are, however, well off their January 2014 peak of $69 per share and about 10% below their 52-week high of $55.99.
At $50.82, Twitter has a market capitalization of $32.26 billion that reflects the company’s rising subscriber-base, commercial clout and future growth prospects despite a lack of profits.
Global investment bank Jefferies initiated coverage on Twitter with a Buy rating and share price target of $65 based on upside from the company’s strong positioning in the online and mobile video advertisement space globally and increasing levels of engagement from advertisements by businesses. Additionally, Jefferies feels Twitter’s recent acquisition of Periscope will more than double Twitter’s user base. Considering Jefferies price target, Twitter offers 28% upside potential.
More broadly, analysts have a $30 – $67 12-month price target range with an average price of $54.50.
Twitter does not pay dividends and management does not expect to pay dividends in the future.
New Features, Partnerships Drive User Engagement, Attract Big-Name Advertisers
Twitter has proven the success of its platform, with greater viewer interaction through high-profile events such as the Super Bowl or breaking news stories across the world. The company has proven its ability to innovate and develop new features based on consumer response, and has grown the attractiveness of its platform for commercial advertising, PR feedback and data analytics.
For example, Twitter now has an updated home page for desktop users that allows visitors (including non-members) to see tweets about popular topics without having to sign into their accounts. After clicking on a topic, users can also see a running list of related tweets. This feature targets an online audience that visits Twitter.com to stay in the loop but does not want to always log in to know what’s going on with their favorite topics. So far, the update is being tested in the U.S. but will soon be rolled out globally.
Through a new partnership with localized search and discovery company Foursquare Labs, Twitter users can now use Foursquare’s location technology to include cities, towns, neighborhoods, landmarks and venues in their tweets. Foursquare has a strong user base and established partnerships with Microsoft Corporation (MSFT), Samsung and visual bookmarking application Pinterest.
In March 2015, Twitter partnered with online music service Rhapsody to offer over 30 million tracks directly through Twitter. Rhapsody will benefit from Twitter’s audience exposure and Twitter gets to offer an additional sticky service to its users and new advertising options for artists and singers. This move also makes Twitter a reckonable competitor to Apple’s iTunes service (AAPL) and offers sizable revenue potential if executed correctly.
Twitter is sharply focused on monetization and revenue growth as its commercial credibility and user base grows. Twitter users can now, through a simple Buy button, purchase exclusive tickets and merchandise within the application. The Buy option, presented for items relevant to the tweet, capitalizes on the power of impulse and influenced purchases and is yet another lucrative revenue stream. Payment processor Stripe handles the actual purchase after users click the Buy button. Management plans to eventually store users’ credit cards on file to make purchasing even easier through single-click functionality.
Twitter recently announced that it will retire the discover button on its mobile application and replace it with tweets about trending topics which management hopes will engage more users. The mobile trend feature will be available for cellphones and tablets running iOS and Android operating systems. Management hopes the new streamlined feature will help users find interesting information faster. The company also opened up direct messaging to all users, not just those that a user is friends with.
Expands Services through Acquisitions
Since its IPO, Twitter has been active in acquisitions so the company offers more services to its users. In January 2015, the company acquired Indian mobile marketing and analytics company ZipDial which uses missed call and text message features on cellphones for businesses to advertise to individuals with limited minutes or data plans, which opens up a massive middle and lower middle class customer base in one of the fastest growing economies in the world.
In February 2015, Twitter acquired Niche – a professional network for individuals on social media – to analyze, grow and monetize their audience. In more recent news, Twitter acquired software startup tenXer, Inc., to address internal issues between engineers and the development of new products. The company also acquired video streaming company Periscope to offer easy live streaming videos on its mobile application. The new feature is an alternative to Twitter’s previous acquisition, Vine, a short video sharing service that loops six-second videos. Originally, users needed a Vine application to view videos but a recent update allows in-application viewing of Vine videos. These innovations continue to enhance usability and user experience, and grow Twitter’s revenue streams.
Monthly Active Users Up 20%, Timeline Views Up 23% – Drives 60% Gain in Ad Revenue
In Q4 2012, Twitter had 185 million quarterly average monthly active users (MAUs). More recently, for Q4 2014, the company reported 288 million quarterly average MUAs, a 56% increase over two years and a year-over-year increase of 20%. Twitter MAUs grew 21% internationally and 17% in the United States.
Twitter reported 182 billion Timeline Views in Q4 2014, a year-over-year increase of 23% and a modest 1% quarter-over-quarter increase. For full-year 2014, the company had 693 billion timeline views, significantly higher than the 594 billion timeline views reported for full-year 2013.
Twitter now has an average of 631 timeline views per MAU, up from 613 in Q4 2013 but down from 635 in Q4 2012. The company now earns $2.37 per 1,000 timeline views, up 60% year-over-year and up 179% since Q4 2012. For Q4 2014, Twitter saw a 49% increase in ad revenue per 1,000 timeline views in the United States and a 94% increase in ad revenue per 1,000 timeline views internationally.
Experienced Management Laser-Focused on Execution
Richard Costolo was elected Chief Executive Officer in 2010 and is responsible for growing and managing the company on a global scale. Under Mr. Costolo leadership, the company’s global active users more than quadrupled to over 284 million. He previously served as co-founder and CEO of web feed management provider FeedBurner.
Anthony Noto joined the company in June 2014 as Chief Financial Officer after holding the same position with the National Football League. Mr. Noto brings over 16 years of financial experience, and earlier held senior financial roles with global investment bank Goldman Sachs (GS).
Adam Messinger is Twitter’s Chief Technology Officer and leads the company’s long term technology direction and architecture. Mr. Messinger joined the company in 2011 as VP – Application Development and has played a major role in newer developments of the mobile application.
97% Jump in Q4 Revenue with $432 Million in Advertising, $47 Million in Data Licensing
For the three months ended December 31, 2014, Twitter reported revenue of $479.1 million (up 97%), a loss from operations of $98.2 million (down 81%) and a net loss of $125.4 million (down 75%), or $0.20 per share. A narrowing of the company’s loss metrics and strong revenue gains suggest strong momentum towards profitability and continued resonance with users and advertisers – both sides of the equation.
As of December 31, 2014, Twitter had $1.51 billion in cash and cash equivalents, $1.56 billion in long-term debt and $3.63 billion in total stockholders’ equity.
2015 Guidance Suggests 64%-67% Full-Year Revenue Growth
For Q1 2015, management expects revenues of $440-$450 million and adjusted EBITDA of $89-$94 million, with full-year revenue of $2.3-$2.35 billion and adjusted EBITDA of $550-$575 million. Twitter will report Q1 2015 earnings on April 28, 2015.
Twitter is a leading social-media platform that has proven its ability to drive up its user base and revenue through innovations and new service and feature offerings. The value of its platform is reflected in the combination of advertising and data licensing revenue, with the latter reflective of the value of user engagement on its platform. While the company is not yet profitable, it continues to show significant double-digit growth in key metrics such as MAUs and Timeline Views. Shares offer significant upside potential but could be subject to near-term volatility tied to general market movements and poor Q1 results which management has already prepared Wall Street for. On the flip side, should results beat management’s guidance, Twitter shares could near of surpass the high end of analyst projections.