Better Than Expected Results for No-Moat Twitter
We are maintaining our fair value estimate and see the stock as overvalued today.
Twitter (TWTR) rang in its second straight profitable quarter while again surpassing expectations for the top and bottom line. Like the previous quarter, growth in daily active users comfortably outpaced monthly active user growth. In addition, improvement in engagement resulted in attracting more ad dollars. While there is uncertainty in data access and possibly in ad revenue in the wake of the General Data Protection Regulation, or GDPR, we still believe Twitter will remain profitable throughout 2018 and beyond, as the firm continues to attract more video ad dollars. We slightly increased our revenue and margin assumptions per the quarterly results and management’s guidance, but we retain our $24 fair value estimate for this no-moat and very high uncertainty name. We still view the stock as overvalued despite a 3% decline following the firm’s earnings release.
Total revenue grew 21% year over year to $665 million, stemming from 21% growth in advertising revenue to $575 million, driven not only by monthly and daily active users, but also by more engaging advertising options, such as in-stream video ads. The firm continues to monetize its data effectively, as data revenue grew 20% year over year to $90 million. Adjusted EBITDA came in at 37% of revenue, and net margins at 9%.
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Ali Mogharabi does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.