Twitter’s 2017 In Review

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TWTR: Twitter logo
TWTR
Twitter

Twitter‘s (NYSE:TWTR) stock is up by around 54% year-to-date (YTD) as investor sentiment has improved due to strong growth in ad engagements across the platform. However, over the first nine months of the year, the company’s top line declined 5.6% year-over-year (y-o-y) and it remained unprofitable as lackluster user growth and subdued advertiser demand remained an issue during the year.

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Focus On International Markets And Improving User Engagement

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Twitter’s difficulties in growing its active user base have been a major investor concern for the past several years, and that is unlikely to change in the near term. Twitter’s average monthly active users (MAUs) grew just 4% y-o-y to 330 million in Q3 2017, but the company was encouraged by 14% growth in its daily active users (DAUs). However, its U.S. subscriber base was relatively stable, with most user additions coming from international markets where ARPU is comparatively lower. As a result, the company could continue to have difficulty growing its revenues in the coming years if it fails to introduce new revenue streams for existing users. To that end, Twitter is aggressively focusing on video to attract new users through various offerings such as Periscope and streaming live events.

Nevertheless, as Twitter redirects its focus to an extent from user expansion to profit generation, an important metric is likely to be user engagement. Advertising metrics continued to see improvement, as total ad engagements increased 100% year-over-year, driven by a shift in mix toward video ad impressions, higher click-through rates, better targeting, and ad relevance. Average Cost Per Engagement decreased 50% year-over-year, reflecting a higher mix of video ad engagements.

Free Cash Flow Continues To Improve

Twitter’s free cash flow in the first nine months of the year improved 35% y-o-y owing to higher cash flows from operating activities and lower capital expenditures. The company’s adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) also grew to over $554 million in the first nine months of 2017.

We have a $19 price estimate for Twitter, which is around 20% below the current market price.

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