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Stock Analyst Update

Twitter Benefits From Brand Advertising Uptick in Q3

We are maintaining our fair value estimate and recommend that new investors wait for a margin of safety before allocating capital to Twitter.

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While Twitter’s (TWTR) third-quarter results missed versus FactSet consensus estimates on both the top- and bottom-lines, we were impressed with the firm’s continuing user growth and increased monetization, which was driven by higher demand for brand advertising due to the current economic recovery. The firm avoided significant impact from Apple’s iOS changes as the dependency of its ad revenue on direct response remains lower than most of its peers. However, we believe a more balanced brand and advertising revenue base will benefit the firm in the long run, creating opportunities to capture more of the small- and medium-size business ad dollars and to tap into commerce. We have not made significant adjustments to our model. We are maintaining our Twitter fair value estimate of $58 and recommend for new investors to wait for a margin of safety before allocating capital to this name.

Total revenue came in at $1.28 billion, up 37% from last year, with growth in both advertising revenue (41%) and data licensing and other revenue (12%). The firm’s user count increased 13% to 211 million, with U.S. and international users up 4% and 15%, respectively. User growth increased inventory by 6% while ongoing strong demand for brand advertising pushed pricing 33% above last year.

The firm generated adjusted operating income of $23 million (1.8% margin) compared with operating income of $56 million (6% margin) last year. On a GAAP basis, Twitter had operating loss of $743 million which included a legal settlement fee of $766 million.

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Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.