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Stock Analyst Update

Solid Twitter User Growth in Q1; Market Awaits Deal

We think the deal is likely to go through later this year, but the market may be pricing in the risk associated with that scrutiny.

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Although Twitter (TWTR) accepted Tesla CEO Elon Musk’s $54.20 per share offer on April 25 to take the firm private, the stock is trading around 10% below the announced acquisition price. We expect Musk to face pressure in the media and from regulators regarding his plans to significantly ease content moderation on the platform. We think the deal is likely to go through later this year and have changed our fair value estimate to $54.20 per share from $58, but the market may be pricing in risk associated with that scrutiny. The breakup fee for both sides is $1 billion.

Twitter’s first-quarter results fell short of FactSet consensus estimates on the top and bottom lines. However, the daily average user count beat our expectations and demand from advertisers remained strong, indicated by year-over-year growth in user monetization.

Total revenue came in at $1.2 billion, up 16% from the prior year, driven by growth in advertising revenue (23%) and partially offset by a decline in subscription and other revenue (33%), mainly due to the sale of MoPub in January 2022. Excluding MoPub, subscription and other revenue declined 5% and total revenue increased 22%. The firm’s top-line growth was also affected by geopolitical factors, including the war in Ukraine.

After discovering that it had overcounted users, Twitter restated those figures to slightly lower levels going back to the fourth quarter of 2020. The firm’s daily average users increased 15.9% from last year to 229 million, with U.S. and international users up 6.4% and 18.1%, respectively. 

The firm suffered an operating loss of $128 million compared with operating income of $52 million (5% margin) in the first quarter last year as gross margin dipped more than 5 percentage points and was only partially offset by a decline in research and development, sales and marketing, and general and administrative costs as a percentage of revenue.

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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.