Should You Buy Twitter?

 

Twitter, Inc. (NYSE: TWTR) “2020 was an extraordinary year for Twitter. We are more proud than ever to serve the public conversation, especially in these unprecedented times,” said Jack Dorsey, Twitter’s CEO. “We reported a 27% year-over-year increase in mDAU in Q4 2020, reaching an average of 192 million. Our product changes to date are promoting healthier conversations for those who use our service, including advertisers and partners, and we are excited about our plans to continue innovating in 2021.”

“We delivered record revenue of $1.29 billion in Q4, up 28% year over year, reflecting better-than-expected performance across all major products and geographies,” said Ned Segal, Twitter’s CFO. “We made significant progress on our brand and direct response products in advance of the recent relaunch of our Mobile Application Promotion (MAP) offering. Advertisers are benefitting from new ad formats, stronger attribution, and improved targeting, resulting in a 31% year-over-year increase in total ad revenue and greater than 50% year-over-year growth in MAP revenue in Q4.”

Fiscal Year 2020 Operational and Financial Highlights 

Except as otherwise stated, all financial results discussed below are presented in accordance with generally accepted accounting principles in the United States of America, or GAAP. As supplemental information, we have provided certain non-GAAP financial measures in this press release’s supplemental tables, and such supplemental tables include a reconciliation of these non-GAAP measures to our GAAP results. The sum of individual metrics may not always equal total amounts indicated due to rounding.

  • 2020 revenue was $3.72 billion, an increase of 7% year over year.
  • 2020 costs and expenses totaled $3.69 billion, an increase of 19% year over year. This resulted in operating income of $27 million and 1% operating margin.
  • 2020 net loss was $1.14 billion, representing a net margin of -31% and diluted EPS of –$1.44.  This compares to 2019 net income of $1.47 billion, representing a net margin of 42% and diluted EPS of $1.87. Both periods were affected by non-cash, tax related adjustments as described below.
    • In 2020, excluding a deferred tax asset valuation allowance of $1.10 billion and corresponding non-cash income tax expense based primarily on cumulative taxable losses driven primarily by COVID-19, adjusted net loss was $34 million, adjusted net margin was -1%, and adjusted diluted EPS was –$0.04.
    • In 2019, excluding an income tax benefit from the establishment of deferred tax assets related to intra-entity transfers of intangible assets of $1.21 billion, adjusted net income was $259 million, adjusted net margin was 7%, and adjusted diluted EPS was $0.33.

Fourth Quarter 2020 Operational and Financial Highlights 

  • Q4 revenue totaled $1.29 billion, an increase of 28% year over year or 27% on a constant currency basis.
    • Advertising revenue totaled $1.15 billion, up 31% year over year or 30% on a constant currency basis.
      • Total ad engagements increased 35% year over year.
      • Cost per engagement (CPE) decreased 3% year over year.
    • Data licensing and other revenue totaled $134 million, an increase of 9% year over year.
    • US revenue totaled $733 million, an increase of 24% year over year.
    • International revenue totaled $556 million, an increase of 34% year over year or 32% on a constant currency basis.
  • Q4 costs and expenses totaled $1.04 billion, an increase of 21% year over year. This resulted in operating income of $252 million and 20% operating margin, compared to operating income of $153 million and 15% operating margin in the same period of the previous year.
  • Stock-based compensation (SBC) expense grew 27% year over year to $128 million and was approximately 10% of total revenue.
  • Q4 net income was $222 million, representing a net margin of 17% and diluted EPS of $0.27. This compares to net income of $119 million, a net margin of 12% and diluted EPS of $0.15 in the same period of the previous year.
  • Net cash provided by operating activities in the quarter was $330 million, compared to $277 million in the same period last year. Capital expenditures totaled $292 million, compared to $150 million in the same period last year, driven by infrastructure investments in data center build-outs to support audience growth and product innovation.
  • Average mDAU was 192 million for Q4, compared to 152 million in the same period of the previous year and compared to 187 million in the previous quarter.
    • Average US mDAU was 37 million for Q4, compared to 31 million in the same period of the previous year and compared to 36 million in the previous quarter.
    • Average international mDAU was 155 million for Q4, compared to 121 million in the same period of the previous year and compared to 152 million in the previous quarter.

Outlook


As we enter 2021, our objectives are similar to previous years and our success will best be measured by our ability to grow our audience and deliver financial results in line with our guidance.

We expect to grow headcount by more than 20% in 2021, especially in engineering, product, design, and research. Given the hiring and investment decisions made in 2020 and previous years, along with anticipated 2021 headcount growth, we expect total costs and expenses to grow 25% or more in 2021, ramping in absolute dollars over the course of the year. Our investments also include the final buildout of a new data center in 2021, adding capacity to support audience and revenue growth.

Finally, assuming the global pandemic continues to improve and that we see modest impact from the rollout of changes associated with iOS 14, we expect total revenue to grow faster than expenses in 2021. How much faster will depend on our execution on our direct response roadmap and macroeconomic factors.

For Q1’21, we expect:

  • Total revenue to be between $940 million and $1.04 billion
  • GAAP operating income to be between a loss of $50 million and break even

For FY21, we expect:

  • Stock-based compensation expense to be between $525 million and $575 million
  • Capital expenditures to be between $900 million and $950 million

Note that our outlook for Q1 and the full year 2021 reflects foreign exchange rates as of January 2021.

For more information regarding the non-GAAP financial measures discussed in this press release, please see “Non-GAAP Financial Measures” and “Reconciliation of GAAP to Non-GAAP Financial Measures” below.

CWEB Analysts view the stock Groupon Twitter, Inc. (NYSE: TWTR) as a long term growth and a great addition to your investment portfolio with an upward momentum of  $150 by 2021 


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