Is Twitter Now Undervalued?

Twitter‘s (NYSE:TWTR) Q3 results were solid, though the market appears to be in wait-and-see mode to ensure that it wasn’t a one-off. As the company continues to grapple with fake news and harassment on its platform, it may have to sacrifice near-term user base growth in order to clean up its platform and ultimately boost monetization. While this is a sensible strategy, it could put some pressure on the company’s results in the coming quarters.

We currently have a price estimate of $30 per share for Twitter, which is slightly below the current market price. Our interactive dashboard on Twitter’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.

Cleaning Up The Platform Is The Right Move, But Could Pressure Results

Owing to Twitter’s reach and the influence the platform wields, the company had become a hunting ground for perpetrators of false news and online bullies. Recognizing the long-term damage that bad actors can cause, the company embarked upon a mission to make its platform healthier and combat malicious use of it. To this end, Twitter has even sacrificed DAU growth, as it has been kicking off bot accounts and users who harass others, offsetting organic user additions.

Management’s initiatives appear to have helped Twitter recently, leading to a strong 29% y-o-y increase in revenue for the third quarter. Another factor that may be providing a tailwind to Twitter’s growth is the impact of privacy scandals at Facebook. While Twitter certainly monetizes user data as well, it provides a data license revenue stream and has largely been more open about its data policies. Its data license revenue has been consistently growing at over 15% in recent quarters, and saw 25% growth in Q3. If Twitter’s management can continue this growth trajectory while improving the health of its platform and avoiding the types of data-related scandals that have plagued Facebook, the stock could have more upside than we currently estimate in our base case model.

Do not agree with our forecast? Create your own price forecast for Twitter by changing the base inputs (blue dots) on our interactive dashboard.