Twitter reaped a global annual revenue of $3.435 billion between September 2019 and September 2020.Twitter market research shows that the platform’s enterprise value as of March 2021 is $46.8 billion.It continues to have a steady income and a stellar reputation that puts it alongside other popular social media channels such as Facebook, LinkedIn, and Instagram. Trefis is currently used by hundreds of thousands of investors, company employees, and business professionals.Despite its drop in monthly active users, Twitter seems to be doing just fine. Importantly, it makes the extensive data/tools easy to use and understand, allowing investors to leverage the platform in their decision making much more efficiently than anything else available. Trefis makes the same content, data, and tools that are currently available only to professional investors today, accessible to everyone. The platform uses extensive data to show in a single snapshot what drives the value of a company's business. You can play with assumptions, or try scenarios, as-well-as ask questions to other users and experts. On Trefis you will get answers to questions like above. If Bing took half the market share from Google Search, what % upside could there be for Microsoft’s stock?.What % of Dell's stock price is Dell Notebooks?.What % of Apple's stock price is iPhones? (Q: Is it 5%, 25%, or 50%?).This might include you though you may have invested money in these companies, or may have been working with one of them for years as an employee, or have consulted with them as an expert for a long time. Surprisingly, the founders of Trefis discovered that along with most other people they just did not understand even the seemingly familiar companies around them: Apple, Google, Coca Cola, Walmart, GE, Ford, Gap, and others. Led by MIT engineers and Wall Street analysts, helps you understand how a company's products, that you touch, read, or hear about everyday, impact its stock price. However, if the figure was to come down to 10%-11%, which is what we expect for Facebook eventually, there could be 15% upside to our price estimate. In the long run, we expect the figure to approach between 20% and 21%, which is similar to the company’s long-term target. However, we expect it to come down subsequently due to operating leverage gain. As a result, its sales and marketing cost as a percentage of revenue can go up in the next 1-2 years. We believe that while Facebook can potentially sustain the current levels and bring the cost down subsequently, Twitter is likely to continue to invest heavily in its sales department. In comparison, the figure for Facebook stood at around 10.5% during the same year. Twitter’s sales and marketing cost as a percentage of revenue increased from 21.4% in 2010 to about 30.3% in 2013 as it ramped up its sales force to sell ad inventory slots and acquire customers. In the event where the company is only able to achieve a figure of 19%, there could be 20% downside to our price estimate. Reaching a figure that is more akin to Facebook will require a lot of effort on part of Twitter in terms of improving its ad revenue per 1,000 timeline views. This is much more aggressive than its target model of 19%-21%, which, in our opinion, does not even remotely justify its steep market valuation. We expect Twitter’s R&D cost as a percentage of revenue to approach 10% by 2020 as the company ramps up its ad sales, grows ad pricing and benefits from economies of scale. However, the figure stood way above Facebook’s 9.6%, which suggests that the company has a long way to go in terms of improving monetization and reducing the cost burden. Twitter’s research and development (R&D) cost as a percentage of revenue has come down from a massive 91.7% in 2010 to about 32.2% in 2013. Unlike the market, we are valuing Twitter on the basis of diluted share count of close to 666 million. Our price estimate for Twitter stands at $29, implying a discount of about 40-45% to the market price. The broader assertion that we make is that given the current high magnitude of these expenses and uncertainty regarding Twitter’s future, the company’s stock is very sensitive to the change in their forecasted levels. These two constitute the majority of Twitter’s operating expenses and stood at a combined 62.5% of revenue in 2013. In this analysis, we break down the cost components and look at two key line items – research and development cost and sales and marketing cost. In one of our previous notes, we compared some of the key engagement and growth metrics for Twitter ( NYSE: TWTR) against those for Facebook (NASDAQ:FB) and LinkedIn (NASDAQ:LNKD) (read How Twitter Stacks Up Against Facebook And LinkedIn ).
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