What Is Twitter?
Adapted From Twitter’s S-1/A: “Twitter (TWTR) is a global platform for public self-expression and conversation in real time. By developing a fundamentally new way for people to create, distribute and discover content, the firm has democratized content creation and distribution, enabling any voice to echo around the world instantly and unfiltered.
The firm’s platform is unique in its simplicity: Tweets are limited to 140 characters of text. This constraint makes it easy for anyone to quickly create, distribute and discover content that is consistent across its platform and optimized for mobile devices. As a result, Tweets drive a high velocity of information exchange that makes Twitter uniquely “live.” The firm aims to become an indispensable daily companion to live human experiences.
People are at the heart of Twitter. The company has already achieved significant global scale and continues to grow. Twitter has more than 230 million monthly active users, or MAUs, and more than 100 million daily active users, spanning nearly every country. The firm’s users include millions of people from around the world, as well as influential individuals and organizations, such as world leaders, government officials, celebrities, athletes, journalists, sports teams, media outlets and brands. Its users create approximately 500 million Tweets every day.
Twitter is a public, real-time platform where any user can create a Tweet and any user can follow other users. The firm does not impose restrictions on whom a user can follow, which greatly enhances the breadth and depth of available content and allows users to discover the content they care about most. Additionally, users can be followed by thousands or millions of other users without requiring a reciprocal relationship, enhancing the ability of its users to reach a broad audience. The public nature of the firm’s platform allows it and others to extend the reach of Twitter content beyond its properties. Media outlets distribute Tweets beyond the firm’s properties to complement their content by making it more timely, relevant and comprehensive. Tweets have appeared on over one million third-party websites, and in the third quarter of 2013 there were approximately 48 billion online impressions of Tweets off of its properties.
Twitter provides a compelling and efficient way for people to stay informed about their interests, discover what is happening in their world right now and interact directly with each other. The company enables the timely creation and distribution of ideas and information among people and organizations at a local and global scale. Its platform allows users to browse through Tweets quickly and explore content more deeply through links, photos, media and other applications that can be attached to each Tweet. As a result, when events happen in the world, whether planned, like sporting events and television shows, or unplanned, like natural disasters and political revolutions, the digital experience of those events happens in real time on Twitter. People can communicate with each other during these events as they occur, creating powerful shared experiences.”
Twitter’s Financials
Twitter’s financials aren’t pretty. Although the company’s revenue growth has been impressive in recent years, net losses continue to pile up. It wasn’t until 2012 that the firm finally posted positive adjusted EBITDA ($21.2 million). Revenue has doubled during the first nine months of 2013, but the company’s net loss over this time period is the worst that it has ever been. Adjusted EBITDA was $30.7 million during the first nine months of 2013, but this is minute compared to the firm’s $32 billion market capitalization (at the time of this writing). Valuation is based on future potential, but it will be years before Twitter’s current fundamentals catch up to its extremely optimistic equity pricing.
Image Source: Twitter
Twitter’s Growth Potential
Adapted From Twitter’s S-1/A: “Mobile has become the primary driver of its business. The firm’s mobile products are critical to the value it creates for users, and they enable its users to create, distribute and discover content in the moment and on-the-go. The 140 character constraint of a Tweet emanates from the firm’s origins as an SMS-based messaging system, and it leverages this simplicity to develop products that seamlessly bridge the user experience across all devices. In the three months ended September 30, 2013, 76% of the average MAUs (monthly active users) accessed Twitter from a mobile device, including mobile phones and tablets, and over 70% of its advertising revenue was generated from mobile devices. The firm expects that the proportion of active users on, and advertising revenue generated from, mobile devices, will continue to grow in the near term.”
Image Source: Twitter
Valuentum’s Take
Twitter and its social networking brethren LinkedIn (LNKD) and Facebook (FB) will continue to dominate the news spotlight in coming years. Shares of Twitter will trade on assumptions of its business 5 to 10 years from now, which command a wide range of fair-value outcomes. At this juncture, we’re comfortable with the technology exposure in both of our actively-managed portfolios, and while we emphasize that Twitter is a fantastic business, we’re not touching its stock. We don’t care if Twitter doubles from here or halves in price tomorrow; in either case, it will be based entirely on speculation. The range of outcomes is just too wide for us to be interested in the firm at this time.