VALUATION HIGHLIGHTS

1. United States Region constitutes 53% of the Trefis price estimate for Twitter's stock.
2. International Region constitutes 44% of the Trefis price estimate for Twitter's stock.

WHAT HAS CHANGED?

Latest Earnings

In Q2 2022, the company posted total revenues of $1.18 billion - down 1% y-o-y. It was due to slow growth in the advertising revenues, as well as uncertainty related to the pending acquisition of Twitter by an affiliate of Elon Musk.

Note - Twitter entered into a merger agreement with an entity wholly owned by Elon Musk, for $54.20 per share in cash on April 25, 2022. Notably, Twitter will become a privately held company after the completion of the deal.

The company has received a notice from Mr. Musk's representative to terminate the merger agreement on July 8. However, the firm considers this termination invalid, and hence has commenced litigation against Mr. Musk and certain of his affiliates on July 12. On July 19, 2022, Twitter’s request for an expedited trial was granted. Further, the trial is scheduled for October 2022.

FY2021 Earnings

For FY 2021, Revenue totaled $5.1 billion, an increase of 37% y-o-y. Advertising revenue was $4.5 billion, up by 40% y-o-y. US revenue totaled $2.8 billion, up by 36% y-o-y. International revenue was $2.2 billion, up 37% y-o-y. FY 2021 Net loss was $221 million, including a one-time litigation-related net charge of $766 million, as well as ongoing investments.

Impact of Coronavirus

IT software and Services industries are suffering from a fall in demand for software and web services as consumers are focusing solely on essentials and not discretionary products. That said, the industry has seen companies with a portfolio of software as well as services aimed at remote collaboration benefit due to the growing number of people globally. Many companies are also operating with employees working remotely from their own homes. The company had a strong start to the year 2020 before the effects of COVID-19 began spreading more broadly, resulting in widespread economic disruption and a significant decrease in global advertising spend from March 2020. The situation has returned to near-normal levels over recent months, though

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

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 Daily Active Users: We currently forecast this figure to increase from 37.5 million in 2021 to 56 million by the end of our forecast period.
• Revenue Per U.S. User: We currently forecast this metric to increase from $75.6 in 2021 to about $105 by the end of our forecast period with steady growth over the years. Notably, the trend of DAU growth has given way to pricing growth with the company's focus on platform health.

International Advertising

• International Average Daily Active Users: We currently forecast this figure to increase from 171 million in 2021 to about 292 million by the end of our forecast period.
• Revenue per International User: We currently forecast this metric to increase from $13.11 in 2021 to $16.77 by the end of our forecast period with steady growth over the years. We expect monetization growth for the international business to be driven by improvement in platform health.

BUSINESS SUMMARY

Twitter is an online platform for self-expression and real-time conversation. The updates and messages posted by users are termed 'tweets' and are limited to 140 characters. This 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.

SOURCES OF VALUE

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 57% of Twitter's revenues in 2019. Although the international business is growing, the monetization level remains much higher for the U.S.

Revenue per U.S. user stood at $66 for the U.S. in 2019, almost five times the corresponding figure for the international segment. We notice a similar discrepancy for Facebook, 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 a lack of purchasing power. In addition, online advertising is still picking up in many emerging markets such as India and Brazil.

KEY TRENDS

Growing Online And Mobile Advertising

The online advertising market is growing, and mobile is going to be at 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 selling its ad inventory, which is why the number of ads is growing. Additionally, there appears to be an oversupply, which explains the decline in 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 thought processes, Twitter is likely to continue becoming an increasingly 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.