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Earlier this year, Twitter (NYSE: TWTR) stock touched a record-high but it has fallen over 30% since then. The social-media giant has returned less than 30% to investors since its IPO eight years back. But in the last five years, TWTR stock has almost tripled in market value. Let’s take a look at the company’s recent quarterly results and analyze if it remains a viable long-term bet.
Twitter reported a net loss in Q3
Twitter reported its Q3 sales in late October after which the stock declined by 11% in a single trading session. The company’s revenue rose by 37% year over year to $1.28 billion which was in line with consensus estimates. However, it reported a net loss of $537 million or $0.67 per share compared to analyst estimates of a net income of $0.18 per share. In the year-ago quarter, Twitter reported a net income of $29 million or $0.04 per share.
The tech company explained the loss was due to a one-time litigation charge amounting to $766 million to settle a class-action suit filed in 2016. Twitter was then accused of misleading investors with respect to publishing engagement metrics of users.
However, its ad sales rose 41% year over year, accounting for 89% of total revenue in Q3. Further, ad engagements were up 6% while the cost per engagement surged 33% year over year.
Twitter’s mDAUs or monetizable daily active users grew by 13% year over year to 211 million and international mDAUs were up 14% at 174 million. But Twitter still derives a majority of sales (around 58%) from the U.S., followed by Japan at 29%.
Similar to other social-media companies including Facebook (NASDAQ: FB) and Snap (NYSE: SNAP), Twitter also aims to monetize its international revenue base and reduce overall reliance on the U.S. market.
What next for investors?
In Q4, Twitter expects sales to rise between 16% and 24% year over year. Comparatively, Wall Street forecast sales to rise by 22% in the quarter ending in December 2021. These forecasts include sales from MoPub which is a mobile ad network owned by TWTR. However, MoPub will be sold to AppLovin (NASDAQ: APP) in Q1 of 2022 for over $1 billion which may impact company sales by almost $250 million next year.
While Twitter expects to report an operating income in Q4, this metric may fall by close to 50% as the company is focused on ramping up investments going forward. The revenue loss associated with the sale of MoPub is unlikely to be offset by growth in other business verticals.
However, Twitter is optimistic about touching $7.5 billion in sales in 2023, which is almost 50% higher compared to the $5.1 billion of sales forecast by Wall Street in 2021. Twitter explained it is on track to meet its lofty revenue estimates by expanding its audience to more than 315 million monetizable daily active users as well as the launch of new products.
Investors are worried Twitter’s focus on expanding its product portfolio might not result in expected top-line growth, especially if user engagement from the U.S. audience decelerates in the upcoming quarters.
The bottom-line
TWTR stock is still valued at 40x forward earnings which is steep compared to Facebook’s multiple of just 20x. However, it is cheaper compared to peers including Snap and Pinterest (NYSE: PINS). Wall Street expects sales to rise by 37% to $5.1 billion in 2021 and by 21% to $6.2 billion in 2022. Comparatively, its bottom line is forecast to improve from a loss of $0.87 per share in 2020 to $0.96 per share in 2022.
Twitter’s valuation is inflated compared to its growth rates and might continue to underperform the markets in the near term.
Analysts have a 12-month average price target of $70 for TWTR stock which is 30% above its current trading price.
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