Twitter, Inc. (TWTR) is one of the largest social media companies in the world. It mainly generates its revenues through advertising services and data licensing.

The platform is free for all users, its best known for the news-breaking tweets from celebrities and politicians. Its unique business model has allowed it to stand tall amid stiff competition in the social media space. The stock has gained 33.4% year-to-date, and 113.8% since hitting its 52-week low of $20 in March. This impressive performance and the potential upside based on many factors have helped the stock earn a “Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates TWTR:

Trade Grade: A

TWTR is currently trading above its 200-day moving average of $37.21, but below its 50-day moving average of $45.38, indicating neither an uptrend nor a downtrend in the stock. Moreover, TWTR has gained 51.5% over the past six months, reflecting a solid short-term bullishness.

TWTR’s revenue for the third quarter ended in September 2020 increased 14% year-over-year to $936 million. Its revenue from advertising increased 15% year-over-year to $808 million, owing to greater ad engagements. While US revenue increased 10% year-over-year to $513 million, international revenue increased 18% to $424 million. The Average Monetizable Daily Active Usage (mDAU) increased by 29% year-over-year to 187 million.

TWTR recently updated its account security. The company acquired Chroma Labs, a story template maker, earlier this year. In May 2020, TWTR acquired Crossinstall, an interactive mobile advertising company. The company also completed rebuilding its ad server this year to ensure faster product development.

Buy & Hold Grade: C

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, TWTR’s positioning is not impressive. The stock is currently trading 23.8% below its 52-week high of $52.93, which it hit on October 29th.

The company’s net revenue grew at a CAGR of 12.2% over the past three years, while EBITDA increased at a CAGR of 7.9% over the same time period. However, leveraged free cash flow declined 23.7% in the past three years.

While other technology companies have expanded into additional domains over the years, TWTR remained largely focused on its microblogging roots, leading to stagnant growth potential.

Peer Grade: A

TWTR is currently ranked #9 out of 58 stocks in the Internet industry. Other popular stocks in the Internet group are Netflix, Inc. (NFLX), Facebook, Inc. (FB), and Walt Disney Company (DIS).

NFLX and FB beat TWTR by gaining 53.6% and 40% year-to-date, respectively, while DIS declined 13.5% over this period. 

Industry Rank: A

The Internet industry is ranked #1 out of the 123 StockNews.com industries. This industry received a boost from the pandemic-driven work-and-learn-from-home normal. As people are expected to resume remote working and learning once again with a potential second wave hitting the United States, the industry is expected to witness significant growth in the coming months.

Overall POWR Rating: B (Buy)

TWTR is rated “Buy” due to its short-term bullishness, loyal user base, and underlying industry strength, as determined by the four components of our overall POWR Rating.

Bottom Line

TWTR has the potential to soar in the upcoming months despite gaining 33.4% so far this year, based on its continued business growth, favorable earnings outlook, and strong financials.

The consensus revenue estimate of $1.17 billion for the fourth quarter ending December 2020 indicates a 16.2% growth from the same period last year. Its EPS is expected to grow at 216.4% next year. This outlook should keep TWTR’s price momentum alive in the near term.  

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TWTR shares were trading at $43.52 per share on Thursday afternoon, up $0.76 (+1.78%). Year-to-date, TWTR has gained 35.79%, versus a 10.41% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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