Why Twitter Is a Smart Buy

Twitter (TWTR) announced second quarter ended June 30, 2016 total revenue of $602 million, up 1.2 percent sequentially from $595 million in first quarter of 2016 and an increase of 20 percent year-over-year from $502 million in second quarter of 2015.

Impressive results

Twitter declared second quarter of 2016 non-GAAP net income of $92.9 million or $0.13 per diluted share, up 92 percent year-over-year from $48.5 million or $0.07 per diluted share during the same period last year.

The key technology company reported continued sequential and year-over-year growths in both its top and bottom lines primarily driven by significant expansion in both the company’s daily active users (DAUs) and monthly active users (MAUs) due to superior marketing efforts, strategic product enhancements and attractive organic growth.

The consistent sequential and year-over-year growth in Twitter’s revenue for the quarter is a result of significant user engagement driving geographically well-diversified quarterly advertising revenue.

Twitter witnessed over 45 percent year-over-year growth in adjusted EBITDA for the quarter mainly due to rising sequential and year-over-year number of monthly and daily active users despite a tough global competition from several other key technology companies.

The microblogging company is expected to continue to witness enhanced user usage and engagement primarily benefited from its continued focus on enhancing the core services to make them quicker, simpler and easier to use such as the capacity to view live-streaming video programs clearly and the associated commentary.

Strong growth  

Twitter illustrated over 3 percent year-over-year global growth in the average number of monthly active users to 313 million in second quarter of 2016 from just 304 million during the same period last year.
Why Twitter Is a Smart Buy
Image by edisona / Pixabay
The international MAUs grew over 4 percent year-over-year to 247 million in second quarter of 2016 from 239 million MAUs in second quarter of 2015. In addition, MAUs for Twitter in the US for second quarter grew over 1 percent year-over-year to 66 million compared to 65 million MAUs recorded in the US during second quarter of 2015.

Further, Twitter has achieved impressive monetization metrics for the quarter with 226% year-over-year favorable change in ad engagement coupled with 64% year-over-year reduction in cost per ad engagement.

The sequential and year-over-year improvement in Twitter’s total number of MAUs while attractive reduction in total engagement costs for the quarter highlights impressive promotional activities being undertaken by the company focused on delivering sustainable long-term company growth while offering attractive shareholder returns.

Going forward, Twitter is continuing to witness slowing growth from its strategic ad business with the company having forecasted its top line to grow just by 17% for second quarter of 2016 as against an earlier estimated top line growth of about 61% primarily due to advertisers spending greatly on high-performing video-ad products but, lowering expenditure on older ads like those that help in getting users to logon to the advertiser’s websites else provide their valuable email address.

In addition, the social-media giant has cautioned about the declining top line growth from advertisers which are believed to be a major source of top line contribution for the company and thus, negatively impacting Twitter’s third quarter of 2016 financial outlook.

The rising competition from other major technology providers such as Instagram, Facebook Inc. and Snapchat, increasingly stealing the market share from Twitter are believed to continue to hurt the company’s key margins while demanding some solid and innovative growth initiatives to minimize Twitter’s ongoing market share decline.

Conclusion

Overall, the investors are advised to “Hold” their position in Twitter, Inc. considering the company’s significant long-term growth prospects being supported by a solid financial position with notable total cash of $3.59 billion and smaller total debt position of $1.62 billion only, encouraging the company to make future growth investments while delivering attractive shareholder returns. However, the profit margin of -16.51% is disappointing and indicates no profit but loss. The PEG ratio of 0.96 signifies satisfactory company growth.
Published on Aug 25, 2016
By Subhen Mittra

Copyrighted 2016. Content published with author's permission.

Posted in ...