Twitter Beat on Earnings, But What About the Valuation?
The great internet cesspool, known in the common tongue as Twitter, reported its 1st quarter earnings on Tuesday, April 23rd, and Wall Street loved it. The stock shot up more than 15% on better than expected user, sales, and earnings growth. We are going to dig into Twitter’s valuation and future potential, but first, let’s check out the highlights from the report:
Sales up 18% YoY to $787 million
GAAP income up 12% YoY to $94 million
Monetizable Daily Active Users (mDAUs) up 6% from last quarter to 134 million
Operating expenses up 18%, which is right in line with sales growth
In the shareholder letter, the company talks a ton about the health of the platform and what they are doing to improve sentiment. And while I think that is an important issue that needs to be improved, remember that they are evaluating themselves on this, so any mention of platform health should be taken with a grain of salt.
If you are confused about what an mDAU is, it shows the number of daily users that Twitter can make money on. This is the most important user metric to follow as it can be a direct indicator of how much revenue the company is going to bring in.
Looking at the Valuation
According to Yahoo Finance, Twitter has a forward P/E of around 34, which is quite high for a company only growing income at 12% YoY. They also have a price-to-sales ratio over 9, a laughable number when you consider how much they are going to have to spend to fix the platform in the coming years. With these metrics and growth numbers in mind, Twitter does not look like a screaming buy at these prices.
Twitter has one thing going for it: a dedicated and growing user base. According to CNBC, the company has the most valuable users of any social media platform. I’m also confident Twitter will be the longest lasting out of the current social media companies, although that doesn’t mean they will magically turn into a cash machine like Facebook.
Don’t get me wrong, I love Twitter and think it is the stickiest of all social media platforms. But just because I love the product doesn’t mean it is time to back the truck up and buy the stock. Anyone looking to buy shares at these levels should consider that as well.
Disclosure: The author is not a financial adviser, and may have an interest in the companies talked about