Twitter’s stock (NYSE: TWTR) has lost 9% YTD, as compared to the 17% decline in the S&P500 over the same period. Further, the stock is currently trading at $39 per share, which is 13% below its fair value of $45 – Trefis’ estimate for Twitter’s valuation.
The company posted weak results in the recently released second quarter, with both the revenues and earnings missing the consensus estimates. It reported total revenues of $1.18 billion – marginally lower than the year-ago figure, due to headwinds in the digital advertising space. Notably, macroeconomic factors like record-high inflation numbers, aggressive interest rate hikes, supply chain issues, and the Russia-Ukraine crisis have fueled the fear of an impending recession. It has led to cuts in advertising spending by some advertisers. On the flip side, the average monetizable daily active usage (mDAU) increased 17% y-o-y. Overall, the firm posted a net loss of $270 million in Q2, as compared to a profit of $66 million in the year-ago period. This was primarily due to a 31% increase in operating expenses.
The lack of clarity around the pending acquisition of Twitter by an affiliate of Elon Musk also added to the company’s woes in Q2. It is to be noted that 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. Markedly, Twitter will become a privately held company after the completion of the deal. That said, it received a notice from Mr. Musk’s representative to terminate the merger agreement on July 8. 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, which is scheduled for October 2022.
The company’s top line increased 37% y-o-y to $5.1 billion in 2021, mainly driven by a 40% rise in advertising revenues. Further, the average monetizable daily active usage (mDAU) improved by 14% y-o-y. However, the growth slowed down in 2022. The total revenues for the first half of the year increased just 7% y-o-y to $2.38 billion. That said, the net income still rose by more than 80% y-o-y to $243.3 million. It was because of a $970.5 million gain on the sale of assets. Overall, Twitter’s revenues are estimated to remain around $5.8 billion in FY2022. Additionally, TWTR’s revenue-per-share (RPS) is likely to improve to $7.28. This coupled with a P/S multiple of just above 6x will lead to the valuation of $45.
|S&P 500 Return||5%||-17%||77%|
|Trefis Multi-Strategy Portfolio||9%||-16%||232%|
 Month-to-date and year-to-date as of 7/26/2022
 Cumulative total returns since the end of 2016
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