TWTR: Is Twitter Stock a Buy Post Q3 Results?
Earlier this year,
Twitter (NYSE: TWTR)
stock touched a record-high but it has fallen over 30% since then.
The social-media giant has returned less than 30% to investors
since its IPO eight years back. But in the last five years, TWTR
stock has almost tripled in market value. Let’s take a look at the
company’s recent quarterly results and analyze if it remains a
viable long-term bet.
Twitter reported a net loss in Q3
Twitter reported its Q3 sales in
late October after which the stock declined by 11% in a single
trading session. The company’s revenue rose by 37% year over year
to $1.28 billion which was in line with consensus estimates.
However, it reported a net loss of $537 million or $0.67 per share
compared to analyst estimates of a net income of $0.18 per share.
In the year-ago quarter, Twitter reported a net income of $29
million or $0.04 per share.
The tech company explained the
loss was due to a one-time litigation charge amounting to $766
million to settle a class-action suit filed in 2016. Twitter was
then accused of misleading investors with respect to publishing
engagement metrics of users.
However, its ad sales rose 41%
year over year, accounting for 89% of total revenue in Q3. Further,
ad engagements were up 6% while the cost per engagement surged 33%
year over year.
Twitter’s mDAUs or monetizable
daily active users grew by 13% year over year to 211 million and
international mDAUs were up 14% at 174 million. But Twitter still
derives a majority of sales (around 58%) from the U.S., followed by
Japan at 29%.
Similar to other social-media
companies including Facebook (NASDAQ: FB) and Snap (NYSE:
SNAP), Twitter also aims
to monetize its international revenue base and reduce overall
reliance on the U.S. market.
What next for investors?
In Q4, Twitter expects sales to
rise between 16% and 24% year over year. Comparatively, Wall Street
forecast sales to rise by 22% in the quarter ending in December
2021. These forecasts include sales from MoPub which is a mobile ad
network owned by TWTR. However, MoPub will be sold to
APP) in Q1 of 2022 for
over $1 billion which may impact company sales by almost $250
million next year.
While Twitter expects to report
an operating income in Q4, this metric may fall by close to 50% as
the company is focused on ramping up investments going forward. The
revenue loss associated with the sale of MoPub is unlikely to be
offset by growth in other business verticals.
However, Twitter is optimistic
about touching $7.5 billion in sales in 2023, which is almost 50%
higher compared to the $5.1 billion of sales forecast by Wall
Street in 2021. Twitter explained it is on track to meet its lofty
revenue estimates by expanding its audience to more than 315
million monetizable daily active users as well as the launch of new
Investors are worried Twitter’s
focus on expanding its product portfolio might not result in
expected top-line growth, especially if user engagement from the
U.S. audience decelerates in the upcoming quarters.
TWTR stock is still valued at 40x
forward earnings which is steep compared to Facebook’s multiple of
just 20x. However, it is cheaper compared to peers including Snap
and Pinterest (NYSE:
PINS). Wall Street
expects sales to rise by 37% to $5.1 billion in 2021 and by 21% to
$6.2 billion in 2022. Comparatively, its bottom line is forecast to
improve from a loss of $0.87 per share in 2020 to $0.96 per share
Twitter’s valuation is inflated
compared to its growth rates and might continue to underperform the
markets in the near term.
Analysts have a 12-month average
price target of $70 for TWTR stock which is 30% above its current
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