Founded in 2006, Twitter, Inc. (TWTR) operates as a platform for public self-expression and conversation in real-time. The company’s products and services include Twitter, Periscope, Promoted Tweets, Promoted Accounts, and Promoted Trends. Advertising is its primary source of revenue. 

The company’s impressive performance for the third quarter ended September 30, 2020, was mainly driven by the increased spending by advertisers. With new ad formats, and improved analytics, advertisers were able to reach a larger audience. 

The Average Monetizable Daily Active Usage (mDAU) increased significantly driven by global conversations around current events with more people online due to the pandemic. Moreover, the company partnered with India’s social app, Dailyhunt, today to bring Moments to the Indian app and further solidify its position in the Indian market.

The stock rallied 36% over the past year to close Friday’s trading session at $45.18. However, investors reacted poorly to the company’s decision of permanently suspending President Donald Trump’s account, @realDonaldTrump and the stock has lost 12.9% since January 8, when the news was announced. The stock is down 16.6% year-to-date. This along with several other factors have made our proprietary rating system to rate the stock as “Neutral.”

Here is how our proprietary POWR Ratings system evaluates TWTR:

Trade Grade: C

TWTR is currently trading above its 200-day moving average of $43.64, but below its 50-day moving average of $51.05. The stock has gained 26.7% over the past six months, which indicates solid short-term bullishness.

For the third quarter ended September 30, 2020, the company’s total revenue increased 13.7% year-over-year to $936.20 million. Revenue from advertising increased nearly 15% year-over-year to $808 million, with a 27% year-over-year increase in total ad engagements. US revenue increased 10% year-over-year to $513 million, while international revenue increased 18% to $424 million. The Average Monetizable Daily Active Usage (mDAU) increased 29% year-over-year to 187 million. EPS increased 11.8% year-over-year to $0.19.

Following the Capitol Hill riot, on January 12, TWTR had announced several steps to protect the conversation on its platform from inciting violence. On January 14, TWTR announced that these measures will be continued until both President-elect Joe Biden and Vice President-elect Kamala Harris are sworn into office on January 20.

The company announced on January 11 that, for the first time, there were more than 2 billion tweets about gaming last year. It increased 75% compared to 2019, with a 49% increase in unique authors.

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 is positioned unfavorably. The stock is currently trading 19.5% below its 52-week high of $56.11, which it hit on December 16.

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 period. This can be attributed to TWTR’s continued market dominance.

Peer Grade: D

TWTR is currently ranked #37 out of 69 stocks in the Internet industry. Other popular stocks in the internet group are MercadoLibre, Inc. (MELI), Amazon.com, Inc. (AMZN), and Facebook, Inc. (FB).

MELI and AMZN gained 180.6%, and 66.7%, respectively, over the past year, while FB returned 13.7% over the same period. These compare to TWTR’s 36% returns over the same period.

Industry Rank: B

The Internet industry is ranked #22 out of the 123 StockNews.com industries. The companies in this industry concentrate on numerous online business opportunities including content, auction exchanges, e-commerce sales, and advertising sales.

The pandemic provided a boost to the companies in this industry as people had to spend more time at home and rely on online services to buy something or get their work done. As remote shopping or working is more time-saving and efficient, this trend is only expected to grow in the near term. So, the companies in this industry are expected to witness greater demand in the upcoming months.

Overall POWR Rating: C (Neutral)

TWTR is rated “Neutral” due to its uncertain near-term outlook despite having positives such as increased investments by advertisers, and updated ad-formats, as determined by the four components of its overall POWR Rating.

Bottom Line

Even though the stock is down 16.6% year-to-date, it has the potential to soar in the near-to-mid-term based on its growing market expansion, continued business growth, favorable earnings and revenue outlook, and strong financials.

The consensus revenue estimate of $956.25 million for the quarter ending March 2021 indicates 18.4% growth from the same period last year. Its EPS is expected to grow 226.8% in 2021.

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TWTR shares were trading at $45.00 per share on Tuesday morning, down $0.18 (-0.40%). Year-to-date, TWTR has declined -16.90%, versus a 1.07% 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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