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Twitter Inc TWTR

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Morningstar’s Analysis

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Economic Moat




Monetization Remains a Concern at Twitter Despite Impressive User Growth; Increasing FVE to $33

Ali Mogharabi Senior Equity Analyst

Analyst Note

| Ali Mogharabi |

Twitter reported mixed second-quarter results, as weak revenue was accompanied by better-than-expected user growth and operating losses. While the current pandemic, the economic downturn, and the lockdowns and quarantines have helped platforms such as Twitter grow their user base, lower ad spending has weakened user monetization, which we think will continue throughout the remainder of 2020. Delays in adding headcount due to the current environment helped on the bottom line, but management expects double-digit year-over-year operating expenses growth in the third quarter, which we think will outpace the top line and result in further losses. We continue to expect Twitter to lag its peers such as Facebook in attracting direct response ad dollars, which are in higher demand. However, due to strong user growth we have raised our projections slightly, resulting in a $33 fair value estimate (from the previous $32). We continue to view the no-moat stock as fairly valued.

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Company Profile

Business Description

Twitter is an open distribution platform for and a conversational platform around short-form text (a maximum of 280 characters), image, and video content. Its users can create different social networks based on their interests, thereby creating an interest graph. Many prominent celebrities and public figures have Twitter accounts. Twitter generates revenue from advertising (90%) and licensing the user data that it compiles (10%).

1355 Market Street, Suite 900
San Francisco, CA, 94103
T +1 415 222-9670
Sector Communication Services
Industry Internet Content & Information
Most Recent Earnings Jun 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type Speculative Growth
Employees 4,900