6/15/2016
Twitter (NYSE: TWTR)
The Market has lost faith in Twitter. It's CEO is the CEO of two companies. What does Twitter even do?
Is Twitter a company worth more than the Market's current valuation?
Price at write-up $15.55
Target $19.95
Valuation Ratios
Price/Earnings (TTM) . . . . . neg
Price/Sales (TTM) . . . . . . . 4.30
Earnings per share . . . . . . . -0.65
Price/Book (MRQ) . . . . . . . 2.28
Price/Cash Flow (TTM) . . . neg
Held by institutions . . . . . . . 38.69
Short interest . . . . . . . . . . . . 12.41
Dividend . . . . . . . . . . . . . . .NA
MarketCap 10.8B
The talking heads site the year long decline in stock price as the primary reason not to own it. I have a low opinion of that level of evaluation. I checked a few ratings reports and they posted similar ratings on Netflix during it's dip, though Twitter is generally nothing like Netflix it is similar in the way Wallstreet views it - Inconceivable black box of Technology. "What does it do, really? Can't we just go back to the other way of doing things? There's too much competition in the marketplace for them to be relevant anymore." And other non sequitur assertions.
In the end it comes down to earnings per share which are basically rocketing up (over the past 5 quarters) with consideration to everything else I list below. The last 5 quarters are -0.9, -0.81, -0.72, -0.59, with an estimated -0.27 to be reported tomorrow (6/16). Twitter has never been profitable before so I don't hold it against them like I would a Wal-mart or Microsoft, a well run business should become profitable and stay there. So it might be reasonable if you can get over all the "new tech IPO" problems below. Yes Facebook had them too, but Facebook was profitable much faster after adding mobile ads.
In 2013 Twitter issued 2,027 million shares, one fifth of their Market cap, presumably to issue the IPO. It may be unrelated, but one could argue, that the 363 million in Good will on it's balance sheet was related to the market sentiment & the idea of Twitter. In 2014 Goodwill increased to 623 million, and in 2015 stands at 1,123 million which doesn't make apparent sense. Why is the "Good will" growing at a such a significant rate? Well in 2015 at least this is at least partially linked to the acquisition of Periscope and is probably a fair valuation around 300 to 500 million. It's basically twitter on (an impermanent) video. This was basically concurrent with Snapchat's release of "Stories" and it's similar except that the more popular a thing is the longer a Periscope stays up and anyone can share it (you don't have to be a follower at the time of broadcast to see it). Vine was acquired for 30 million in 2012, and it has taken off more wildly than anyone thought a 6 second video service could. And very quickly I can see the ridiculous goodwill accumulation can be directly correlated to the large number of acquisitions by Twitter which is a standard practice that implicitly suggests that it didn't overpay for anything. Ever. Still, lots of ad revenue, marketing team, marketing analytics, site improvement, and service improvement additions in there so I think I can probably give it to them here.
Interestingly long term debt has gone from 198 million to 1,607 million, and is now 1,603 million. So slightly inching back to 1.5 Billion dollars in debt is good, but it might take a few years to pay off.
Microsoft just bought Linked in at a 47% premium (133 previous market to 196 agreed upon price) so we can never rule such a thing out. I'd argue that Twitter is far more valuable than Linked it, just with a less conventional road to profit.
I think $16 is a fair price. I wouldn't expect it go below 13.95 but would look to pick it up around $14. A small stake that you'd be willing to hold for 5 years at least. I'd look to sell half near the peak of a resurgence which I'm guessing will be around $45 to $80/share (I'm sticking with about $70). After that peak sell I might buy back if there is a reactionary dip. But that'll bee well into 2017 or 2018 I expect so no real use thinking about it now. But right now, this is a dip and probably worth picking up as long as you get it for a song. I'm guessing a 15% chance it goes to zero and a 40% chance 300% to 600+% upside within 10 years.
Due Diligence - FB, MSFT (LNKD), relative portfolio position, current assets, risk tolerance.
Twitter (NYSE: TWTR)
The Market has lost faith in Twitter. It's CEO is the CEO of two companies. What does Twitter even do?
Is Twitter a company worth more than the Market's current valuation?
Price at write-up $15.55
Target $19.95
Valuation Ratios
Price/Earnings (TTM) . . . . . neg
Price/Sales (TTM) . . . . . . . 4.30
Earnings per share . . . . . . . -0.65
Price/Book (MRQ) . . . . . . . 2.28
Price/Cash Flow (TTM) . . . neg
Held by institutions . . . . . . . 38.69
Short interest . . . . . . . . . . . . 12.41
Dividend . . . . . . . . . . . . . . .NA
MarketCap 10.8B
The talking heads site the year long decline in stock price as the primary reason not to own it. I have a low opinion of that level of evaluation. I checked a few ratings reports and they posted similar ratings on Netflix during it's dip, though Twitter is generally nothing like Netflix it is similar in the way Wallstreet views it - Inconceivable black box of Technology. "What does it do, really? Can't we just go back to the other way of doing things? There's too much competition in the marketplace for them to be relevant anymore." And other non sequitur assertions.
In the end it comes down to earnings per share which are basically rocketing up (over the past 5 quarters) with consideration to everything else I list below. The last 5 quarters are -0.9, -0.81, -0.72, -0.59, with an estimated -0.27 to be reported tomorrow (6/16). Twitter has never been profitable before so I don't hold it against them like I would a Wal-mart or Microsoft, a well run business should become profitable and stay there. So it might be reasonable if you can get over all the "new tech IPO" problems below. Yes Facebook had them too, but Facebook was profitable much faster after adding mobile ads.
In 2013 Twitter issued 2,027 million shares, one fifth of their Market cap, presumably to issue the IPO. It may be unrelated, but one could argue, that the 363 million in Good will on it's balance sheet was related to the market sentiment & the idea of Twitter. In 2014 Goodwill increased to 623 million, and in 2015 stands at 1,123 million which doesn't make apparent sense. Why is the "Good will" growing at a such a significant rate? Well in 2015 at least this is at least partially linked to the acquisition of Periscope and is probably a fair valuation around 300 to 500 million. It's basically twitter on (an impermanent) video. This was basically concurrent with Snapchat's release of "Stories" and it's similar except that the more popular a thing is the longer a Periscope stays up and anyone can share it (you don't have to be a follower at the time of broadcast to see it). Vine was acquired for 30 million in 2012, and it has taken off more wildly than anyone thought a 6 second video service could. And very quickly I can see the ridiculous goodwill accumulation can be directly correlated to the large number of acquisitions by Twitter which is a standard practice that implicitly suggests that it didn't overpay for anything. Ever. Still, lots of ad revenue, marketing team, marketing analytics, site improvement, and service improvement additions in there so I think I can probably give it to them here.
Interestingly long term debt has gone from 198 million to 1,607 million, and is now 1,603 million. So slightly inching back to 1.5 Billion dollars in debt is good, but it might take a few years to pay off.
Microsoft just bought Linked in at a 47% premium (133 previous market to 196 agreed upon price) so we can never rule such a thing out. I'd argue that Twitter is far more valuable than Linked it, just with a less conventional road to profit.
I think $16 is a fair price. I wouldn't expect it go below 13.95 but would look to pick it up around $14. A small stake that you'd be willing to hold for 5 years at least. I'd look to sell half near the peak of a resurgence which I'm guessing will be around $45 to $80/share (I'm sticking with about $70). After that peak sell I might buy back if there is a reactionary dip. But that'll bee well into 2017 or 2018 I expect so no real use thinking about it now. But right now, this is a dip and probably worth picking up as long as you get it for a song. I'm guessing a 15% chance it goes to zero and a 40% chance 300% to 600+% upside within 10 years.
Due Diligence - FB, MSFT (LNKD), relative portfolio position, current assets, risk tolerance.