I am neutral on Twitter (TWTR) as it trades at a discount to its historical valuation multiples, its price target implies significant upside, and its growth momentum is strong, but Wall Street analysts are neutral on it and its track record is mixed.
Twitter is a social media networking website and microblogging platform based in San Francisco, California. It was created in March 2006 by Jack Dorsey, Evan Williams, Biz Stone, and Noah Glass and launched in July 2006.
The company’s products include Twitter, Twitter Amplify, Promoted Ads, Follower Ads, and Twitter Takeover. Today, it’s one of the most popular and most influential digital media channels and is an integral communication tool.
Strengths
Since Twitter is one of the most influential websites in the world, it’s no wonder that its biggest strength is goodwill and its reputation.
In addition to the general population, accounts include celebrities, politicians, and world leaders. As such, it’s an important forum to discuss all kinds of matters. Additionally, the company has diversified streams of income and earns money from both advertising and licensing.
Recent Results
Twitter’s growth over Q3 of 2021 has been impressive. Its total revenue earned in Q3 of 2021 was $1.28 billion, a figure that was 37% higher than that seen in the previous year.
Additionally, this growth was seen across all offerings and products, showing strong diversification and success on all fronts. The only Q3 operating loss was that of $743 million, which was primarily due to a one-time litigation expense of $766 million.
It’s also important to note that the average monetizable DAU was as high as 211 million. This showed a 13% year-over-year increase. It was in large part due to product development and global conversations.
Twitter also has both U.S. and international income sources, with $742 million revenue generated from within the U.S. and $542 million generated internationally.
Valuation Metrics
TWTR stock looks attractively valued right now as its enterprise value-to-EBITDA and price-to-normalized earnings ratios are well below historical averages at 18.7x and 42.9x, respectively.
The historical averages are 21.8x and 54.5x respectively.
In 2022 analysts expect the company to grow revenues by 21.3%, EBITDA by 7.5%, and normalized earnings per share by a whopping 298.5%.
Wall Street’s Take
According to Wall Street analysts, TWTR earns a Hold analyst consensus based on seven Buy ratings, 16 Hold ratings, and two Sell ratings in the past three months. Additionally, the average TWTR price target of $63.17 puts the upside potential at 65.6%.
Summary and Conclusions
TWTR stock has substantial upside potential as its average price target implies that the stock could appreciate by over 60% over the next year and its valuation multiples are well below its historical averages.
On top of that, the company has strong growth momentum after growing revenue by 36.7% and normalized earnings per share by 125.8% in 2021, and a strong growth outlook for 2022.
Analysts are neutral overall on the stock and the company has a mixed track record for generating attractive shareholder total returns, however.
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