Twitter earnings outlook: Ad business grows strongly, but upside is limited

:: The article posted does not have investment advice, please investors to do their ownDetermine 

Summary

  • Twitter stocks show some upside, but not much, compared to fair value.

  • I expect revenue to grow in double digits in the coming quarters.

  • I'm going to buy Twitter, even though it's not my first choice in this area.


Twitter (TWTR), one of the industry's most famous social media platforms today, is largely considered the biggest rival to communications services heavyweight Facebook (FB).The company is chief executive Jack Dorsey and payment platform Square (SQ).Since its initial public offering in November 2013, Twitter's performance in the open market has been erratic, with its debut at $26 a share and ending its first trading day at $44 a share.It hit a high of about $75 a share during its initial run and suffered a stunning drop after the lock expires.At the time of writing, Twitter shares are currently trading at about $30 a share, and while I don't think they're going to hit record highs any time soon, I do think there's some room for improvement at current levels.

Historical performance and forecasts

YCharts data

Despite the market turmoil and the numerous scandals surrounding its main revenue-generating approach, Twitter has performed strongly in 2018 in terms of earnings and share prices.Twitter's shares rose 20 percent from a starting value of about $24 to $28.74, reporting the following notable financial highlights:

· Revenue of $3,042 million (up 25% YoY) in FY2018

· Gross profit of $2,077 million (up 31% YoY) in FY2018

· Net income of $1.206 billion

· $1.59 basic earnings per share

· 321 active users worldwide

Like other social media entities, Twitter generates revenue from monetization of its user base.These revenues are reported in segments, divided into advertising and data licensing, and two other parts.Historically, data licensing accounted for about 11-15% of total revenue, while the rest of sales were attributed to the company's advertising business.The company divides its advertising division into two geographic regions, the United States and internationally.Twitter's revenue growth is driven primarily by its average monthly active users and their ability to monetize those users.My projections of the ability to undertake these activities in the coming years are detailed in the table below.

User engagement showed a degree of seasonality, with the highest levels occurring in the first half of the year and the lowest in the previous quarter.In recent times, monthly user growth, both international and domestic, has been relatively flat, with no annual growth rate of more than 5% in any quarter of 2018.I expect this trend to continue for some time to come, as described above.

While MAU growth was relatively flat, total revenue from the advertising business grew strongly year-on-year.I expect domestic advertising revenue to be $1.604 billion in fiscal 2019 and $1.851 billion in fiscal 2020, 18% and 15%, respectively.Internationally, I am looking for 1.529 billion fy15 and FY2020

In dollars and $1,768 million, advertising revenue rose 21% and 16% year-on-year.

The chart above details the ad ARPU i expect for the next eight quarters.Much like other reports from ARPU's domestic companies, U.S. users make far more profit than foreign users.While I expect healthy growth in international advertising revenue, I expect this to continue for the foreseeable future.

The figure above is a visualization of the total sales distribution of my forecast company.My data is compiled using AD revenue forecasts and other historical ratios of ad revenue notifications.The sum of these two amounts shows the revenue values in the forecast consolidated profit table below.

Several key indicators in the income statement I expect are as follows:

· FY19 revenue $3.64 billion (20% YoY)

· FY19 net income of $675.31 million

· FY 19 underlying earnings of $0.86 per share

· Revenue in FY20 $4.204 billion (up 15% YoY)

· Net income for Fiscal 20 was $797.42 million

· Underlying earnings per share of $0.98 in FY20

By understanding forecasts and underlying assumptions, we can turn to Twitter's valuation.

Valuation

WACC

My valuation of Twitter is based on a discounted cash flow analysis.The weighted average cost of capital for the discount rate is listed in the sensitivity table above.My WACC assumes a 2.7% risk-free rate and a 0.78 leverage-free beta.This provides a discount range of 8.11% to 10.95% with a central value of 9.46%.

Free Cash Flow

The table above shows my free cash flow assumptions for the next few periods.I expect the company's free cash flow to grow by 23% in 2019 and gradually slow to 2023.

Cash Flow Discount

The above table provides an overview of the sensitivity table based on my discounted cash flow analysis on Twitter.I expect a fair value in the mid-30s based on optimism and pessimism of $28.00-$46.00, respectively.With that in mind, I set a target price of $35.00 per share for 2019.

Risk

In my opinion, the biggest risk Twitter faces today is the regulatory risk surrounding data monetization.The company does not face public scrutiny like Hyundai Facebook, but the monetization of user data is just as important to Twitter.Given my continued expectations of a relatively stable trend in user growth, the company's ability to monetize users is critical to their ability to increase revenue.If the regulations are sufficient to prevent Twitter from performing these tasks, it could have a significant negative impact on the company's valuation.If you don't believe this is a serious risk, consider the fact that CHIEF executive Jack Dorsey has had to be called to testify in Congress (see above) along with Facebook's chief operating officer, Sheryl Sandberg, and alphabet (GOOG) executives.GOOGL (although they did not choose to attend the hearing).

Conclusion

Twitter's trading price is below its fair value, but it has not reached the level of some alternatives.I don't like Twitter as much as Twitter because I think companies offer similar industry exposures, a more diversified portfolio and a stronger base.Having said that, I rated Twitter as a buy with a price target of $35.00, a one-year time frame.

The author of this article:James Bonifer,U.sResearch (public: meigushe) http://www.meigushe.com/-- to help Chinese investors understand the world, to focus on U.S. technology stocks and Chinese stocks, and to keep an eye on us.


Finish



U.S. stock research society WeChat Group is coming

There are more updated first-hand messages in the group.

And the great gods.Welcome to join us. 

Follow the WeChat Public No.meigushe or add WeChat18684760414 

Prepare the injection group to join thePlease be patient with the addition of more people

SmallMake up such a spelling, a good look and then go!