1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Hoang Quoc Anh
Hoang Quoc Anh
Articles (281)  | Author's Website |

Twitter: Growing Business, but Expensive Stock

The company is making changes to attract new users, yet the stock remains overvalued

April 25, 2019 | About:

Twitter Inc. (NYSE:TWTR) jumped more than 15% to nearly $40 per share after releasing strong first-quarter 2019 earnings on Tuesday. While the stock is near its 52-week high of $47, it is still far from its all-time high of $73.3, which it hit during its initial public offering at the end of 2013. Based on impressive first-quarter results, 2019 could be a very good year for the social media company. 

Daily active users and monthly active users

One of the most important metrics for social media companies is active users. Some companies measure it daily, while others measure monthly use. Twitter has historically reported monthly active users, but, on the recent earnings call, announced it will switch to monetizable daily active users (mDAU) going forward as it more accurately reflects its audience. 

In the first quarter, Twitter recorded declining MAU, but high growth in mDAU. Twitter had 330 million MAUs in the first quarter, down 1.8% from the same period last year. In contrast, mDAUs grew 11% year over year to 134 million, including 8% growth in the U.S. and 12% growth internationally.

There is also a relationship between DAU and MAU. The DAU/MAU ratio represents the stickiness of the product. The higher the ratio, the better. Sequoia Capital tweeted that the standard ratio was 10% to 20%. Only a handful of companies top 50%. WhatsApp, the industry leader, has 70% engagement.

Source: Sequoia's Tweet

Regarding this engagement ratio, Twitter has a fairly good ratio of 40%. Over the past year, the engagement ratio rose from 35.7% in first-quarter 2018 to 40.6% in first-quarter 2019.

Period

Q1/2018

Q2/2018

Q3/2018

Q4/2018

Q1/2019

DAU (million)

120

122

124

126

134

MAU (million)

336

335

326

321

330

DAU/MAU

35.7%

36.4%

38.0%

39.3%

40.6%

Along with the growth in DAU, Twitter also reported strong growth in revenue and operating income. Quarterly revenue grew 18% to $787 million, or 20% growth on a constant currency basis. Operating income rose 25%, while net income jumped 213%, from $61 million last year to $191 million. The significant growth in net income was mainly attributable to a $94.3 million income tax benefit. 

Continuous product upgrade and improvements

The growth in DAUs and operating performance was boosted by continuous upgrades, better conversation organization and increasing relevance for users. The company's new prototype app, twttr, has been live for a month, allowing users to see entire conversations instead of having to tap through multiple tweets, making Twitter more conversational. CEO Jack Dorsey said users love that the platform has put all of the replies on one surface.

In addition, the company applied machine learning and deep learning for scanning and searching for abusive content and harassment. Around 38% of the abuse has been detected by machine learning.

Moreover, the company recently launched a new camera, allowing users to capture and share what is happening around them by swiping left from the home timeline.

Users can also see highlights of the FIFA Women’s World Cup in France through the company's partnership with Fox Sports as well as Major League Baseball highlights. Indeed, Twitter has been ramping up its efforts to bring great content to users, cultivating conversations and attracting more users, which, in turn, attracts more advertisers to run targeted campaigns on its platform.

At a nearly $40 per share, Twitter has a total enterprise value of $26.7 billion, or 10 times sales. As the company's sales multiple has stayed in the 4.5 times to 10 times range over the last four years, a 10 times sales multiple is quite high. The price-sales ratio is even higher than Facebook's (NASDAQ:FB) at 9.6.

Conclusion

Having reported strong first-quarter DAU and operating results, Twitter could continue to deliver good growth in 2019. The improvements it is making to the platform will definitely attract more users, which will translate into more ad revenue and better operating performance. With the recent 15% pop in its stock price and a high sales multiple, I would wait for a better price point to buy shares.

Read more here:

Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.

About the author:

Hoang Quoc Anh
Chief investment strategist for the Global Hidden Gems Portfolio (https://ghginvest.com). Searching around the world for stocks that trade below net cash but are still profitable.

Visit Hoang Quoc Anh's Website


Rating: 3.0/5 (2 votes)

Voters:

Comments

Valuator
Valuator - 1 year ago    Report SPAM

Revenues are stagnating while customer count goes down the tubes. That's what happens when you start banning more and more of your customers.

Hilariously, it's not just the right anymore. Now, these dystopias are going after the middle. Bye bye revenue and relevance!

If they keep banning normies, they'll eventually make their way to gab, and this garbage can will happily be myspaced into oblivion.

Please leave your comment:



Performances of the stocks mentioned by Hoang Quoc Anh


User Generated Screeners


pjmason14Momentum
pascal.van.garsseHigh FCF-M2
kosalmmuse6
kosalmmuseBest one1
DBrizanall 2019Feb26
kosalmmuseBest one
DBrizanall 2019Feb25
kosalmmuseNice
kosalmmusehan
MsDale*52-Week Low
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)