The public self-expression platform provider, Twitter, Inc. (TWTR), has been making consistent product and services developments over the past few months. Last month, it said that there was a ‘modest’ impact to its ad revenue from privacy changes that Apple Inc. (AAPL) rolled out on iOS devices. However, the stock has declined 26.8% in price over the past month and 33% over the past nine months to close Friday’s trading session at $48.40.

Real Money’s Jim Collins described TWTR as a ‘lousy investment’ this month. Also, several insiders have sold TWTR shares over the past few weeks. Vijaya Gadde sold 14,471 shares of TWTR at $52.61 per share on November 15. Ned Segal sold 5,000 shares on November 9, while Robert Kaiden, the company’s Chief Accounting Officer, sold 10,637 shares on November 5. 

In addition, hedge funds’ interest has recently declined in the stock. So, TWTR’s near-term prospects look uncertain.

Here are the factors that could influence TWTR’s performance in the upcoming months:

Positive Developments

TWTR announced on November 11 that it is building a new division called Twitter Crypto to develop digital currencies, blockchain technology, and “other decentralized technologies.” ViacomCBS Inc. (VIAC) and TWTR entered a multi-year global agreement on November 10 to deliver premium digital content around VIAC’s live events, hit shows, and iconic franchises. Also, on November 9, TWTR expanded its paid subscription service, Twitter Blue, to the United States and New Zealand.

Sale of MoPub

On October 6, 2021, TWTR announced an agreement to sell MoPub to AppLovin Corporation (APP). The sale will likely help TWTR accelerate the development of owned and operated revenue products and drive growth across key areas. MoPub generated roughly $188 million in annual revenue in its fiscal year 2020. However, its management said on October 26, 2021, “We do not expect to recoup the total revenue loss associated with the sale of MoPub in 2022, which is estimated to be between $200 and $250 million.”

Disappointing Financials

For the third quarter. ended September 30, 2021, TWTR’s revenue increased 37.1% year-over-year to $1.28 billion. This was driven primarily by ongoing product improvements and global conversations around current events. However, the company’s non-GAAP net loss came in at $434.42 million, versus $151.38 million in net income in the prior-year quarter. Its non-GAAP loss per share was $0.54, which was 460% below the Street’s $0.15 EPS estimate. And its adjusted EBITDA came in at a loss of $444.81 million compared to a $294.06 million gain in the year-ago quarter.

Stretched Valuation

In terms of forward non-GAAP P/E, TWTR’s 169.56x is 800.6% higher than the 18,83x industry average. Likewise, the stock’s 25.17x forward EV/EBITDA is 162.6% higher than the 9.58x industry average. Also, its forward EV/S and P/S of 7.22x and 7.60x, respectively, are higher than the 2.45x and 1.74x industry averages. 

POWR Ratings Reflect Uncertainty

TWTR has an overall C rating of C, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. TWTR has a C grade for Momentum, which is consistent with its 26.8% loss over the past month and 22% decline over the past three months.

The stock has a C grade for Quality, which is in sync with its trailing-12-month EBIT and EBITDA margins of 7.45% and 16.17%, respectively, which are lower than the industry averages of 10.89% and 21.93%.

TWTR has a C grade for Value, which is consistent with its higher-than-industry valuation ratios. Also, it has a D grade for Sentiment, in sync with unfavorable analyst sentiment.

TWTR is ranked #39 of 77 stocks in the Internet industry. In addition to the POWR Rating grades I have just highlighted, we have also rated the stock for Growth and Stability. Click here to see all the TWTR ratings.

Bottom Line

In providing the outlook for the next year on October 26, TWTR said it expects a roughly mid-20% increase in total expenses. The sale of MoPub could lead to some losses in revenue. Furthermore, analysts expect TWTR’s EPS to decline 7.9% year-over-year for the current quarter ending December 31, 2021, to $0.35. So, the stock looks significantly overvalued at its current price level, and we think it could be wise to wait for a better entry point.

How Does Twitter (TWTR) Stack Up Against its Peers?

While TWTR has an overall POWR Rating of C, one could check out these other stocks within the Internet industry with an A (Strong Buy) or B (Buy) ratings: Yelp Inc. (YELP), Travelzoo (TZOO), and Alphabet Inc. (GOOGL).

TWTR shares rose $0.26 (+0.54%) in premarket trading Monday. Year-to-date, TWTR has declined -10.62%, versus a 26.64% 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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