Twitter, Inc. (TWTR) is one of the most popular, yet distinctive, social media platforms, attracting millions of users from all over the world since its inception 14 years ago. Its popularity increased significantly since the onset of the pandemic with people spending more time on social media while staying at home. TWTR’s daily active users increased 24% year-over-year in the first quarter to 166 million.
TWTR’s CEO Jack Dorsey described the reasons behind this growing viewership as, “People are turning to Twitter to stay informed, to share solutions and to ask for help and support one another, and we see it in the numbers.”
Also, with the US presidential elections round the corner, TWTR is gearing up for a busy season ahead. Its growth momentum in the upcoming months combined with several other factors have helped the stock earn a “Buy” rating in our proprietary POWR Ratings system.
Trade Grade: A
TWTR is currently trading above its 50-day and 200-day moving averages of $41.2 and $34.2, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 39% return over the past three months reflects a solid short-term bullishness.
For the second quarter ended June 2020, TWTR’s Monetizable Daily Active Usage (mDAU) grew 34% year-over-year to $186 million. This growth was mainly driven by a drastic increase in social media usage since the pandemic-led lockdown. TWTR generated $201 million cash from operations and $39 million free cash flow over this period.
The company has stayed ahead of its game through various acquisitions such as MarketingTech, Artificial Intelligence Apps, Social Platforms, etc. In mid-February, TWTR acquired Chroma Labs, a story template maker and in May 2020 it acquired Crossinstall, an interactive mobile advertising company. Both these acquisitions were strategic – the former was to enhance the viewer’s experience while the latter was acquired to tap into the expert advertising and user acquisition strategies.
TWTR recently entered into a partnership with Bud Light and NFL to give viewers a holistic digital experience during the upcoming football season. It also teamed up with WebMD to increase awareness on several healthcare related topics to help combat the pandemic.
One of the biggest milestones achieved by TWTR this year is completing its ad server rebuilds to support faster product development. This has increased the platform’s stability, as well as helped it scale the advertising segment.
Buy & Hold Grade: A
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, TWTR is well positioned. The stock is currently trading just 5% below its 52-week high of $48.65.
Looking at the past three years, the stock has grown about 150% based on its solid growth in daily usage and on-going product enhancement. The company’s revenue grew at CAGR of 10.6% over the past three years, while EBITDA rose at a CAGR of 22.6% over this period.
Peer Grade: A
SE, SNAP, and Z gained 328.6%, 65.3% and 120.3% year-to-date, respectively, compared to TWTR’s return of 46.7% over this period. However, TWTR’s recent product enhancement, acquisition spree coupled and ad server rebuilds makes it well positioned to surge in the upcoming months.
Industry Rank: B
The Internet industry is ranked #4 out of the 123 industries in the StockNews.com universe.
From kids attending school online and adults doing their jobs remotely, 2020 has witnessed a monumental increase in online and digital activities globally. According to Statista research expert J. Clement, data usage in the US increased 18% year-over-year in the first few weeks of March. Average daily data usage crossed 16.60 GB during this period. With the coronavirus crisis deepening every day as no news of an effective vaccine is available, and different parts of the world are reporting second waves, the work-and-learn from culture is here to stay. This should feed into the growth of the Internet industry as a whole.
Overall POWR Rating: A (Strong Buy)
TWTR is rated “Strong Buy” due to its impressive past performance, short-and-long-term bullishness, and solid price momentum, as determined by the four components of our overall POWR Rating.
Even though the revenue growth declined in the last quarter, the long-term prospect of the company looks bright. The company has successfully found a solution for its ad server issues, and in the past few months has made progress in creating a better platform with a stronger monetization potential than ever before. This should bolster TWTR’s growth momentum beyond its double digit gains year-to-date.
Analyst sentiment, which gives a good sense of a stock’s future price movement, is impressive for TWTR. It has an average broker rating of 1.89, which indicates favorable analyst sentiment. Out of 44 Wall Street analysts that rated the stock, 9 rated it “Strong Buy”. The market expects TWTR’s revenue to grow by 24.1% in 2021.
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TWTR shares were trading at $46.05 per share on Wednesday afternoon, down $0.95 (-2.02%). Year-to-date, TWTR has gained 43.68%, versus a 9.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Madhavi Taneja
Madhavi is a seasoned financial analyst with a focus in valuing early-stage technology companies and evaluating potential mergers and acquisitions. After majoring in economics, she developed a deep understanding of investment strategies while working with EX Service. More...
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