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Investment Overview for Twitter (NYSE:TWTR)

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Latest Earnings

For FY 2019, Revenue totaled $3.46 billion, an increase of 14%, or 15% on a constant currency basis. Advertising revenue grew 14%, or 15% on a constant currency basis, primarily driven by 21% growth in the US. Net income was $1.47 billion, representing a net margin of 42% and diluted EPS of $1.87. In the same period last year, net income was $1.2 billion, representing a net margin of 39.6% and diluted EPS of $1.56.

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Below we highlight key drivers of Twitter's value that present opportunities for upside or downside to its current Trefis price estimate.

United States Advertising

• U.S. Average Monthly Active Users: We currently forecast this figure to increase from 68 million in 2018 to 73 million by the end of our forecast period. Total MAU growth has been moderating due to Twitter cracking down on certain suspicious or fake profiles. This trend should not be a long-term declining trend.
• Revenue Per U.S. User: We currently forecast this metric to increase from $24 in 2018 to about $30 by the end of our forecast period, at a CAGR of 3%. Notably, the trend of MAU growth has given way to pricing growth with the company's focus on platform health.

International Advertising

• International Average Monthly Active Users: We currently forecast this figure to increase from 262 million in 2018 to about 322 million by the end of our forecast period. In light of Twitter's focus on fake news and broader platform health, the company's international MAU growth can potentially be slower than earlier estimates.
• Revenue per International User: We currently forecast this metric to increase from $5.34 in 2018 to $7.23 by the end of our forecast period, at a CAGR of 4.4%. We expect monetization growth for the international business to be driven by improvement in platform health.

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Twitter is an online platform for self-expression and real-time conversation. The updates and messages posted by users are termed as 'tweets,' and are limited to 140 characters. This essentially enables a quick exchange of information, while maintaining the conciseness and relevance of the messages. The company had 330 million average monthly active users at the end of 2018.

Twitter earns revenue through advertising and data licensing, with the advertising business accounting for a majority of its revenues. The company charges advertisers and marketers for promoting their tweets and Twitter accounts.

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We believe that the United States business is the primary source of value for Twitter because:

Significantly Higher Ad Monetization Compared To International Business

The U.S. accounted for approximately 54% of Twitter's revenues in 2017. Although the international business is growing, the monetization level remains much higher for the U.S.

Revenue per U.S. user stood at $24 for the U.S. in 2018, almost four times the corresponding figure for the international segment. We notice a similar discrepancy for Facebook as well, which is a much more mature and profitable company. As there are structural reasons for this disparity, ad monetization in the U.S. may remain significantly higher for the foreseeable future. The average ad pricing in international markets is lower due to lack of purchasing power. In addition to this, the online advertising is still picking up in many of the emerging markets such as India and Brazil.

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User Growth Has Slowed Down On The Platform

Twitter’s monthly active user base growth has been slowed by the management's focus on platform health. In light of Facebook's troubles with privacy and abuse of platform, Twitter has become doubly cautious of what Twitter's reach can be used for. While user base is likely to return, the pace is likely to be slower than in the past.

Growing Online And Mobile Advertising

The online advertising market is growing, and mobile is going to be the forefront of this growth in the coming years. Google has long dominated this market but Facebook, LinkedIn, and now Twitter, are beginning to tap the opportunity.

Global mobile advertising share in the global online ad market is growing rapidly. This plays right into Twitter's hands as the company earns more than 85% of its revenues from the mobile platform.

Though Ad Engagements Are Rising Rapidly On The Platform, The Cost Per Ad Engagement Is Rising Slowly

We think the company has a long way to go in terms of selling its ad inventory, and this is why the number of ads is growing. Additionally, it appears that currently there is oversupply which explains the decline in the average ad pricing.

Twitter is expanding its sales presence across the globe. In addition, it is also enhancing the reach of its self-service advertising platform (which primarily caters to small and medium-sized businesses) across additional markets and we expect these initiatives to propel sales growth in the coming quarters.

As nationalism continues to impact how communications shape though processes, Twitter is likely to continue becoming an increasing important aspect of news dissemination and consequently shaping opinion. Twitter's ability to mold sentiment is likely to keep the stock an important market constituent.

How Does Trefis Modelling Work?

How do we get the historical numbers for this chart?

Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.

Who came up with the Trefis forecast for future years?

The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.

How does my dragging the trendline on the chart impact the stock price?

1. We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
2. We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.

See more on: DCF Methodology

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