Twitter IPO experienced huge success and created buzz of exponential growth potentials. The current environment of Internet centric companies garnering high valuations supported Twitter equity price and investors jumped into bandwagon to make profits in long terms.
Recent acquisition of WhatsApp by Facebook also fuelled analyst optimism. Post IPO most of the analyst cautiously optimistically supported valuation as Twitter projected aggressive approach to acquire more user and subsequently monetizing user assets.
Q4, 2013 results and projected 2014 offered few shocking facts around Twitter struggle to acquire more users. As the monthly active user base growth were in high single digit but showed good traction of Mobile monthly active user base of 184 Mn.
The growths in developed geographies are muted whereas Twitter is focusing on Emerging countries to gain more user base. One such example is their collaboration with highly successful TrueCaller to generate additional traffic as well as create an environment to lure additional user base on Twitter platform. The current monthly user base of around 241 Mn is generating around $0.3 Advertisement revenue per active user per month. Notably Twitter 90% of revenue comes from Advertisement. The EBITA margin for Q4 and 2013 came around 18% and 11% respectively. Interestingly most of the investors ignore stock based compensation which inturn will dilute total equity and its impact on Earnings per share.
On considering projected 2014 revenue range of $ 1.15 to $ 1.2 Bn seems distant. To achieve revenue and EBITA growth of around 85% and 100% YoY require Twitter to achieve 50% monthly active user base to command higher price point for advertisement.
The major hurdle for Twitter is to convert Emerging geographies into revenue generating userbase. It is very common in emerging countries that new user uses any service for few months and then move to another one. The micro blogging segment falls into premium service whereas messaging falls into mass segment. The recent move by Twitter is to monetize their user inventory to attract advertisers but it also irritated many loyal userbase. Given the current trend of user adoption, even if Twitter achieves 20% growth in monthly active user would require to generate minimum $1.11 per active user to achieve forecast for 2014. Does one feel that it’s achievable! The current market capitalization of around $30 Bn and EPS of (-$3.41) clearly indicate that Twitter is far from growth which is experienced by peers. The projected capex of 330-390 would put pressure on their cash flows and current cash position of $2.2 Bn is going to be used in future to expand their base. With bleak success probability, it is widely expected that any quarterly disappointment in Q1 and Q2 is going to bring down current share price downwards drastically as the indication were offered post Q4,2013 result.
In my point of view, Twitter will continue to struggle due to attached service nature which falls in select categories and further monetization effort may trigger exodus of loyal user base as the beauty of Twitter service was its cleaned service offering. On emerging market segment, they may face uphill task to grow due to regulatory and other aspects. Why not to invest in dividend yield based companies with strong market positioning such as Oracle, Cisco System and many others
