The mainstream media says that Twitter (TWTR) reported excellent numbers; however, those numbers were not as good as everyone thinks. Revenues beat our expectation and the Street's. In addition, the adj. EBITDA number was impressive too. The areas of concern are disappointing user engagement, disappointing EBITDA guidance, and what appears to be much higher stock-based compensation expense and capex, going forward. We adjusted our model based on the FY '13 results and management's color on this year. At the end, we came up with a $13.76bil valuation for TWTR, which is slightly higher than our initial pre-IPO valuation of $13.18bil. Of course, comparison with our previous valuation is not important. What is important is the fact that at the closing, TWTR had a market cap of $37.4bil, significantly higher than our valuation! Unfortunately, the stock did not react well to the Company's earnings release. It declined nearly 18% in AHs. While this may be an indication that the market is coming to its senses, we are not sure if the stock will trade down this much on Thursday. But as usual, in our opinion, it should as the Company remains overvalued.
TWTR reported FY '13 revenues of $664.9MM compared to our $652.7MM estimate and the Street's $639.4MM. Its GAAP bottom-line numbers were not that impressive as it reported net loss of $645.3MM compared with our $224.6MM estimate. These days, the Street seldom puts out any GAAP net income or net loss figures. Adj. EBITDA of $75.4MM was very impressive, except for the fact that it was helped by over $600MM in stock-based compensation. We were expecting a mere $11.8MM in adj. EBITDA.
Now let's get to the details that really matter. In terms of user reach, or monthly active users (MAU), TWTR reported total MAU of 241MM for Q4, below our 261MM estimate. User engagement indicator, referred to as timeline views, was also disappointing, coming in at 147,783.0MM, significantly below our 157,592.7MM. Similar to Facebook (FB) the good part was the monetization or price, or as TWTR refers to it: ad revenue per 1,000 timeline view. That figure of $1.49 was significantly above our $1.16 estimate. We think there are a few factors that drove this. One was the seasonality factor as marketing and ad volume is usually high during Q4. The other is the uber-enthusiasm regarding mobile ads that we also saw at FB. Companies and advertisers are jumping on the bandwagon, for now, fearing that they may miss the great revolution. We think price growth will begin to decelerate later this year.
We must also note that, to our surprise, TWTR's non-ad revenues, or data licensing revenues, came in higher than what we had expected; $70.3MM vs our $64.0MM. This was due to an acquisition that TWTR made in FY '13. In addition, we think given the TWTR platform where anyone, anywhere can post tweets, reaching possibly anyone, anywhere; some companies and advertisers might be thinking about conducting the analysis in-house and then posting the free tweets. The data necessary for this, comes from TWTR. We are not sure about the real cost of doing these things in-house, but if companies and advertisers do come up with strategies on when and to whom they can post their tweets to get a good ROI, they might as well purchase the lower-priced data. Of course, the data will be lower-priced until TWTR realizes the higher demand, to which it will react by upping its prices. We will now try to touch on TWTR numbers and move away from our 'theoretical' discussions!
In terms of margins, gross margin of 59.9% was lower than our 63.7% estimate. TWTR is still growing so we do expect margin expansion after FY '14.
Going forward, management provided revenue, EBITDA, capex and stock-based compensation guidance. Our revenue projection for FY '14 was at the low-end of the guidance, so given the higher than expected pricing, for the time being, we upped revenues slightly. We also adjusted our EBITDA projection higher, but we note that it was mainly due to significantly higher than expected stock-based compensation expense. In fact, excluding stock-based compensation expense, our gross margin assumption for FY '14 had to be lowered from 64.7% to 57.9%. So, margins are impacted by other higher costs rather than just by the non-cash stock-based compensation. The Company's capex guidance was also significantly higher than what we had assumed. Hopefully TWTR will realize very good returns on so much invested capital.
For FY '14, we expect $1.19bil in revenues (higher than our initial $1.16bil estimate), with $1.08bil from ads and the rest from data licensing. We estimate GAAP net loss of $875.5MM and EBITDA of $139.0MM. We still do not expect TWTR to have a full profitable year (on a GAAP basis) until FY '16.
Our FCF projection for the next 5 years (FY '14 - FY '18) was not changed much, as our new higher revenue estimates were partially offset by lower margins and higher capex.
We continue to think TWTR is overvalued. We use TWTR every day and love it; but in terms of what the Company is worth, based on our DCF model, we think that figure is around $13.76bil and certainly not the current $37.4bil.
No comments:
Post a Comment