Date: 23/06/2017 Headquarters: San Fran., US Target Price: $10.

90
Ticker: TWTR Potential: -41% Price: $18.50

52Week High/Low
Market Profile
25.25/14.12
xxxEquity Report
Avg. Volume (3M) 17 794 217
Shares Out. 702 135 Business Overview
Market Cap. 12.12 B

Dividend Yield N/A Twitter is an online news and social networking service where users post and interact
BETA 1.17 with messages, "tweets", restricted to 140 characters. Although Twitter its their main
EPS -0.62 service, they also have Periscope, acquired before launch in 2015. Twitter main source of
PER -27.02 revenue is through advertising with paid promotion. Advertisers can also run short video
Closing Price 18.5 ads before or during premium video content. This strategy was damaged when they lost
Source: Yahoo Finance their right to stream NFL games to Amazon. Data licensing is the other source, weighing
10% of the revenues.
Share Price
Twitter faces fierce completion from its closest rival, Facebook, Google and Snapchat
that have higher growth rates of active users and more user engagement. However, the
Q1 2017 report showed an increased user growth, Ad revenue per user decreased, resul-
ting from Twitters new ad strategy. They expect that they can now offer more selective
ads, increasing the quality and relevance to the users.
Twitter is focusing on cutting expenses to reach a positive EBITDA, is expected to reach
Source: Yahoo Finance
it in the next years.
User Data
Key Ratios 2016 2017E 2018F 2019F 2020F 2021F 2022F 2023F 2024F
Total Rev. (M$) 2 530 2 384 2 797 3 153 3 428 3 721 4 030 4 356 4 702
Net Profit -457 -91 -82 -35 15 246 297 361 332
EBITDA Margin 1.4% 7.2% 13.4% 13.8% 14.3% 22.8% 23.5% 24.1% 24.8%
EBIT Margin -15% -9.4% -0.1% 1.6% 3.0% 12.2% 13.5% 14.7% 16.0%
ROC -12% -7.6% -0.1% 1.6% 3.2% 13.9% 16.4% 19.1% 22.1%
ROE -9.9% -1.9% -1.8% -0.8% 0.3% 5.1% 5.8% 6.6% 7.3%
Cash Cycle (days) 54 61 58 55 52 49 46 43 36
Debt/Assets 26% 26% 27% 27% 27% 26% 25% 24% 23%
Fin. Leverage 38% 38% 40% 41% 41% 39% 37% 34% 32%
Source: Twitter data / Team Estimates Int. Coverage 219% 112% 25% 21% 18% 15%
EV/EBITDA 138 30.9 14.8 13.4 12.3 7.3 6.7 6.1 5.1
ROC / WACC Source: Team Estimates

Investment Analysis

I issue a Sell recommendation based on the analysis done. Twitter at the current price of
Source: Team Estimates $18.5 is overvalued based on the DCF estimated share value of $10.9.
Sensitivity Analysis Twitter may be able to reach positive cash flows in the following years, but struggles to
WACC increase their user base and the inability to monetize them as their close competitors do,
Growth Rate

8,09% 9,09% 10,09% predicts a subpar growth potential for the future of the company. As this isn't new pro-
1,5% 11.43 10,56 9,96
2,0% 11,92 10,90 10.21
blems and the management didnt show until today the capacity to innovate and present
2,5% 12.49 11,30 10,49 new products, Twitter will continue to underperform in comparison to its peers.
Source: Team Estimates

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 EBITDA P&L
(millions USD) 2016 2017E 2018F 2019F 2020F 2021F 2022F 2023F 2024F
Advertising 2 248 2 102 2 443 2 722 2 916 3 161 3 426 3 713 4 023
Data licensing 282 282 354 431 511 560 604 644 679
Total Revenues 2 530 2 384 2 797 3 153 3 428 3 721 4 030 4 356 4 702
Operating Exp. 2 495 2 212 2 421 2 719 2 937 2 872 3 085 3 305 3 534
EBITDA 35 172 376 435 490 849 945 1 051 1 167
Source: Team Estimates D&A 402 395 379 384 389 395 402 409 417
EBIT -367 -223 -3 51 101 454 543 642 751
Montly Active Users Net Income -457 -91 -84 -35 15 246 296 361 432
EPS -0.65 -0.13 -0.12 -0.05 0.02 0.35 0.42 0.51 0.61
Source: Team Estimates

Balance Statement
(millions USD) 2016 2017E 2018F 2019F 2020F 2021F 2022F 2023F 2024F
Source: Twitter data / Team Estimates Total Assets 6 870 6 875 6 913 6 917 6 941 7 193 7 493 7 853 8 279
Property and Eq. 784 703 726 753 782 813 848 885 925
Multiples Intangible assets 95 81 85 90 95 101 106 113 120
Goodwil 1 185 1 185 1 185 1 185 1 185 1 185 1 185 1 185 1 185
Tobin-q PBV
Other nc. assets 154 154 154 154 154 154 154 154 154
Twitter 2.22 2.64 Clients 651 545 606 645 660 672 679 682 679
4.23 4.77 Cash and eq. 989 1 149 1 068 982 949 1 147 1 395 1 707 2 089
Alphabet
Short-term invest 2 786 2 786 2 786 2 786 2 786 2 786 2 786 2 786 2 786
Facebook 6.67 7.32 Other c assets 227 272 303 322 330 336 339 341 340
0.63 12.95 Equity 4 605 4 675 4 591 4 556 4 471 4 817 5 114 5 475 5 906
Snap Inc
Total Liabilities 2 265 2 200 2 322 2 361 2 370 2 377 2 379 2 378 2 372
Sector 3.94 8.35 IBD 1 762 1 782 1 859 1 870 1 870 1 870 1 870 1 870 1 870
Suppliers 122 88 97 104 105 107 107 107 106
Others liabilities 381 330 365 388 395 400 402 401 396
Source: Team Estimates/ Yahoo Finance
Source: Team Estimates

DCF

Enterprise Value 5 502

NOA 3 935
FCFF
Firm Value 9 437 (millions USD) 2016 2017E 2018F 2019F 2020F 2021F 2022F 2023F 2024F
EBIT -367 -223 -3 51 101 454 543 642 750
IBD 1 782 EBIT (1-T) -367 -223 -3 51 101 295 353 417 488
Equity 7 655 CAPEX 560 300 407 415 423 432 442 453 464
D&A 402 396 379 384 389 395 402 409 417
Value of Share 10.90 -WC -94 25 46 31 13 11 8 5 2
Current Share Price 18.50 FCFF -431 -152 -77 -11 54 247 304 368 339
Source: Team Estimates
Source: Team Estimates
WACC

Rf 2.91%
Kd 6.03%
BETA 1.37
MRP 6.00%
Ke 11.2%
WACC 9.09%
Source: Team Estimates

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The team:

Analyst / Director Email Linkedin

Pedro Andr Silva pedroasilvawork@gmail.com linkedin.com/in/pedroassilva

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