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
 
Security Measures Initiative to Boost User Engagement: Headquartered in San Francisco, California, Twitter, Inc. (NYSE: TWTR) is a leading platform that connects users to a network of people, news, ideas, opinions and data. Twitter is accessible in over 40 languages globally. The service can be availed through twitter.com, SMS and a range of mobile devices that includes Twitter for iPhone and Twitter for Android. A user can express and conversate thoughts on any matter in real-time. Tweets usually have a world limit of 280 characters. Twitter helps users to explore and find the content of their interests involving tweets that might have attachments like media links, photos, etc.
 
TWTR’s promoted products consist of Promoted Tweets, Promoted Accounts and Promoted Trends. With these products, advertisers create and optimize successful marketing campaigns, connect the community, interested in business, and spread the list of trending topics or timeline for an entire day.  The company’s revenue mainly depends on advertisers and actual active users. Therefore, Twitter continues to make its platform more entertaining for users to drive further growth. Looking at the past performance, the company has witnessed a 116.8% top-line CAGR over the period from FY14 to FY18.Twitter reported third-quarter 2019 revenues at $823.7 million, up 9% year over year. During the quarter, the company saw decent growth in monetizable daily active users (mDAU), which was up 17% year-over-year, driven by ongoing product improvements.  
 
Going forward, for the fourth quarter, the company expects total revenue to be in the range of $940 million and $1.01 billion.  Further, the company expects operating income to be in the range of $130 million and $170 million as compared to an operating income of $44.1 million in the previous quarter. For FY19, the company expects capital expenditures to be towards the lower end of the guided range at $550-$600 million. The company anticipates FY19 headcount growth to be marginally over 20%. The company is focused on capitalizing on video and ad formats such as Video Website Card. 
 
The company’s plans to increase features and concentrate more on blocking online abuses have aided the company to expand its user base. Further, the company sees the potential to increase revenues in the future on the back of a growing user base and higher level of commitment from its users. The company’s video ad formats persist to show strength, especially in its Video Website Card and In-Stream Video Ads. This momentum is expected to prevail in the near-term.


Monetizable Daily Active Users (Source: Company Reports)
 
Q3FY19 Financial Highlights for the period ended 30 September 2019: The company posted a yoy revenue growth of 9% to $823.7 million, reflecting strength in September in the U.S.Average monetizable daily active users (mDAU) at 145 million during the quarter was a key highlight as compared to 124 million reported in the year-ago quarter. Adjusted EBITDA for the quarter came in at $262.8 million, down 11% year over year. GAAP operating income during the quarter came in at $44.1 million, down 51.9%. GAAP operating margin came in at 5% as compared to 12% in the year-ago quarter.


Q3FY19 Key Highlights (Source: Company Reports)
 
Average Monetizable Daily Active Users by Region: During the quarter, average U.S. mDAU was 30 million, up from 26 million in the year-ago quarter. Further, average international mDAU stood at 115 million, up from 98 million in the prior corresponding period. Notably, the company removed over 50% of abusive tweets content during the quarter. This was an increase from 43% reported in the previous quarter.
 
Geographical Contribution: U.S. revenue stood at $465.4 million, up 10% year over year.  International revenue posted a yoy growth of 7% and came in at $358.3 million. Japan accounted for 16% of the total revenue during the quarter and continued to be the second largest market of the company. Problems pertaining to the company’s legacy Mobile Application Promotion (MAP) product with certain specific personalization and data settings affected quarterly revenues over 3%.
 
Advertising Metrics: Advertising revenues during the quarter came in at $702.3 million, up 8%. U.S. advertising revenue stood at $385 million, an increase of 11% from the year-ago quarter. International ad revenue was up 5% on year over year basis and came in at $317.7 million. Revenues from Ad engagements increased 23%, backed by higher clickthrough rates (CTR) across ad formats. However, cost per engagement declined 12% from the year-ago quarter. Revenues from data licensing went up 12% from the year-ago quarter and came in at $121.5 million due to the robust implementation of data enterprise solutions (DES).
 
Balance Sheet & Cash Flow Position: The company exited the quarter, with cash and cash equivalents and short-term investments of $5.82 billion. Net cash provided from operating activities during the quarter came in at $335.5 million as compared to $443.9 million in the year-ago quarter. Net capital expenditure for the quarter came in $169 million as compared to $117 million in the same period last year.
 
 
Cash Flow Details (Source: Company Reports)
 
Recent Updates: On 5^th December 2019, the company announced an offering of $700 million principal amount of 3.875% Senior Notes due 2027. The notes have been offered to qualified institutional buyers under Rule 144A, under the United States Securities Act of 1933. Net proceeds from the offering will be utilized for general corporate purposes. Interest on the Notes will be payable in cash semi-annually in arrears, beginning on June 15, 2020. The Notes will mature on December 15, 2027, unless earlier repurchased or redeemed. 

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 37.45% of the total shareholding. The Vanguard Group, Inc. holds the maximum interest in the company at 10.51%, followed by Morgan Stanley Investment Management Inc. (US) with 5.74% of interest in the company.


Top 10 Shareholders (Source: Thomson Reuters)

Key Metrics: In Q3FY19, the company reported a gross margin and EBITDA margin of 65.9% and 19.9%, respectively. EBITDA margin for the quarter stood higher than the industry median of 8.7%. Net margin for the quarter stood at 4.4%, better than the industry median of 3.7%. During the quarter, the company reduced its debt levels, reporting a decline in the debt-to-equity multiple from 0.33x in the June 2019 ended quarter to 0.22x in the September 2019 ended quarter.


Key Metrics (Source: Thomson Reuters)

Industry Outlook: The industry is gaining momentum from continuous demand for digital transformation. Growth expectations are appealing mainly due to rapid implementation of SaaS solutions, which help in providing applications to any user, at any time and from anywhere, on any device. The pay-as-you-go model helps the industry providers modify their offerings as per the requirement of the users. Additionally, the industry is also benefitting from ever-increasing need to secure cloud platforms, in the presence of growing cyber-attacks and hacking. Moreover, the shift from on-premise workload to cloud environments by the enterprises, infrastructure checking has gained extreme value. 

4QFY19 and Full-Year FY19 Guidance: For fourth-quarter 2019, the company expects revenues to be in the range of $940 million and $1.01 billion. Further, operating income is projected in the range of $130 million and $170 million. For FY19, the company expects capital expenditures to be towards the lower end of the guided range of $550-$600 million.
 
Key Risks: The company faces stiff competition from peers like Facebook, Google and Amazon for ad-dollars. Moreover, product issues and higher-than-expected seasonality might impact the top-line, going forward. 


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodologies:
 
Method 1: EV/EBITDA Based Valuation

EV/EBITDA Based Valuation (Source: Thomson Reuters)
 
Method 2: Price to Cashflow Based Valuation

Price to Cashflow Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock as on 18 December 2019 closed at $31.68 and is currently trading at a price to earnings multiple of 15.38x. During the third quarter of fiscal 2019, TWTR reported a mixed set of numbers. However, the company sees the potential to increase revenues in the future, given a growing user base and a higher level of commitment from its users. Moreover, the company’s schemes to identify rule breaches and boost the safety of users are likely to have lessened abusive actions on the platform. Further, robust demand for video ad products like Video Website Cards and in-stream pre-roll are key positives, auguring well for the future growth of the company. We have valued the stock using two relative valuation methods, i.e., EV/EBITDA and Price to Cashflow multiples and arrived at the target price of a high single-digit to low double-digit upside (in % term). Hence, we recommend a “Buy” rating on the stock at the closing price of $31.68 per share, up 3.19% as on 18 December 2019.

 
TWTR Daily Technical Chart (Source: Thomson Reuters)

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