Tuesday, July 29, 2014

TWTR, FB: Strong Q2 for Twitter; stock up ~ 30% in AHs; remains overvalued ...

Twitter (TWTR)

TWTR had a good overall Q2, as we expected.  Data licensing revenues which grew 43% sequentially, beat what the Street was looking for, as we expected.  MAUs also beat estimates, as we expected.  The big surprise was the ad price, or ad revenue per 1000 timeline views, of $1.60, which represented a 100% Y/Y growth.  And we think such growth was driven by the fact that more advertisers are jumping on the mobile ad bandwagon and, of course, the World Cup, which helped improve user engagements significantly.

Obviously, the World Cup is not held every quarter.  However, this is an even-year which means the political space will be very hot for advertising and purchasing data, benefiting TWTR.  The better than expected performance of Q2, and in our opinion, the mid-term elections, drove management to up its FY '14 guidance.  One may now call TWTR a media company.    

Although MAUs showed better growth than in the previous quarter, in our opinion, TWTR is still adding users at a slower pace than the market expected when the Company had its IPO.  However, the ongoing and ever-increasing geopolitical factors worldwide will likely help increase growth rate of MAUs during the next 12 months. 

While we do not think that more MAUs and geopolitical factors will increase user engagements as significantly as the World Cup did, they will certainly help the ad revenue growth rate.

As mentioned earlier today, the data created by the social media platforms is also very valuable, helping TWTR's data licensing segment continue its strong double-digit growth going forward. 

Everything we said above regarding TWTR was positive.  Unfortunately, from a valuation standpoint, specially based on the $50 stock price in AHs, we think TWTR remains overvalued. 

After adjusting our estimates higher, our 5-year DCF model still resulted in an $18.4bil valuation of the Company.  At $50/sh in AHs, the market is valuing TWTR at nearly $30bil.  In other words, TWTR, a company with slower than initially expected user growth, and seasonal revenues too highly dependent on huge worldwide events, is trading at 22x and 140x FY '14 sales and EBITDA, respectively.  TWTR remains in its early stages of growth, so let's look at the same multiples for FY '15 and FY '16: 18x and 84x FY' 15 sales and EBITDA; and 13x and 42x FY '16.  Those valuation multiples make FB look like a utility company!  Of course, we believe FB is also a bit overvalued. 

Remember that many jumped on the TWTR bandwagon even when it hit $70, and they all got taken for a ride.  Hopefully, the 30%+ jump in the stock price in AHs doesn't indicate that everyone expects TWTR to perform like this every quarter. 

1 comment:

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