Analyst Note| Ali Mogharabi |
Twitter reported excellent second-quarter results that exceeded our expectations and the FactSet consensus estimates. User growth combined with higher demand for brand advertising due to the current economic recovery, and the firm’s product enhancements and additional features which attracted more direct response advertisers, drove impressive top-line growth. We adjusted our projections higher as we believe such a mix of ad offerings will increase Twitter’s ad clients and their spending. In addition, some of the firm’s latest non-ad offerings could gain traction in the long run and slightly reduce dependence on advertising, while contributing a bit to revenue growth. Our higher projections resulted in a $58 fair value estimate, up from $52. We recommend new investors to wait for a margin of safety before investing in Twitter as the stock increased 6% in after-hours, trading at 1.27 times our fair value estimate, and 10 times and 35 times our 2021 sales and adjusted EBITDA projections, respectively.