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Twitter on Track With Strong User Growth, Monetization

We are maintaining our fair value estimate of $58 despite mixed Q4 results.

Twitter TWTR reported mixed fourth-quarter results, falling short of our top-line forecast while exceeding our bottom-line estimates. Despite the top-line miss, both user growth and revenue per user was impressive, as the firm continues to capitalize on the growing demand for brand and direct response advertising. We believe the Twitter's effort to focus more on advertising opportunities will mix well with its balanced brand and direct response revenue base in the long run, allowing the firm to capture more small- and medium-size business ad revenue and tap further into e-commerce growth. We are maintaining our fair value estimate of $58, placing the stock in 4-star territory. Total revenue came in at $1.6 billion, up 22% from last year, with growth in both advertising revenue (22%) and data licensing and other revenue (15%), bringing total revenue for the year to $5.1 billion in 2021. The firm's user count increased 13% year over year to 217 million, with U.S. and international users up 3% and 16%, respectively. Management claims user numbers improved because of Twitter's new single sign on feature and improved notifications that attracted former users to return to the platform. In the fourth quarter, costs and expenses totaled $1.4 billion, an increase of 35%, mainly due to increased investment in research and development as well as sales and marketing. The firm generated operating income of $167 million (11% margin) compared with operating income of $252 million (20% margin) last year.

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