Read us and find out why TWTR is a Great Investment Idea for 2022
Twitter is one of the world's leading social media platforms, focusing more on content relevant to the present moment vs. competitors.
The Business
TWTR generates most of its revenues from the sale of advertising services (which accounts for around 85% of revenues) and licensing data to third parties (accounting for about 15% of revenues).We forecast revenue to grow 22% in 2022 and an additional 18% in 2023, following our outlook for a 37% increase in 2021. Ad revenue grew 41% in the third quarter, with ad engagements rising 6% while cost per engagement (CPE) rose 33%. We think recent results by TWTR relative to peers are impressive, as it appears to be better navigating Apple’s iOS privacy changes as well as supply chain concerns given its greater exposure to services/digital goods. Average monetizable DAU (mDAU) of 211 million, accelerated to 13% in Q3 from 11% the prior quarter, led by international growth of 15%, while a more saturated US market rose 4%. We forecast adjusted EBITDA widening to 29% in 2022 and 30% in 2023 versus our 27% margin view in 2021. While revenue is outstripping cost increases in 2021, we expect 30% plus headcount growth in 2021 along with other costs to result in a mid-20% increase in total expenses for 2022 (excludes additional investments). Inconsistent execution has kept margins erratic, but the business model has demonstrated its inherent profitability
Investment Case
Our Buy opinion reflects what we see as rational valuation for a social network-based business with a strong brand that continues to benefit from the shift of ad spend to online/digital from traditional media. Recent improvements to TWTR’s ad server and to the advertisers’ app have significantly increased the automation of ad placement and improved targeting precision, likely boosting monetization as a material contributor to growth. In our view, further improvements fueled by machine/deep learning hold even greater potential longer term. We like efforts to explore the potential for shopping on TWTR’s platform, which we think could act as an additional growth driver for the company. Risks to our opinion and target price include greater than expected deceleration in ad spending amid uncertainties surrounding Apple’s iOS ad tracking changes and macroeconomic issues, greater than expected cost increases that could constrain margins, and unforeseen changes to the regulatory landscape
Price Target
Our 12-month target price of $75 is based on a P/E of 46.3x to our 2023 EPS estimate of $1.62, near its 3-year historical forward average of 46.5x but above peers given our view of potential monetization efforts ahead.
Our risk assessment is MEDIUM. Reflects the company’s business model, reliance on advertising, and its competitors in social media and other online/digital media, partially offset by its strong global brand and platform.
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