Despite Twitter becoming a major channel for the White House to communicate with voters, the realities of the social media company’s situation have continued to dominate its financial performance.
Q4 2016A revenues / Adj-EPS was $717 million / $0.12, badly missing consensus at $740 million / $0.23. Monthly active users (MaU) also remained stagnant, coming in at 319 million, up 4% YoY which reflected the anemic revenue growth, which was just 1% YoY.
Daily active users did manage to grow 11%, indicating some increase in engagement with the service, but it was not nearly enough to convince advertisers to spend more money on the platform.
This reality was reflected in Q1 2017 guidance, where Adj-EBITDA will be $75-85 million – well below consensus at $188 million, which I think reflects stagnant revenues as well as higher investments in media consumption.
I continue to believe that the lack of growth is caused by the fact that Twitter has already fully monetized its segment, and in order to grow revenue further, it has to address the other segments of the “Digital Life” pie.
In this regard, Twitter has opted to go for media consumption which would add another 10 percentage points to its coverage, bringing it to 28%. This is why Twitter’s progress with its streaming of NFL games and partnership with Bloomberg, Buzzfeed News and PBS is so important. If Twitter can develop this offering into a fully-fledged media consumption service with real engagement, then I could see Twitter increasing its revenues to over $1 billion per quarter, giving annualized revenues of $4-5 billion.
However, it is still very far from challenging YouTube or Facebook Video, which is why I need to see far more than just NFL streaming and a bit of news in order to become confident that Twitter has a media consumption offering that it can monetize.
With $196 million in cash flow from operations in Q4 2016 and $763 million for FY2016, Twitter is very far from any existential danger. But I see the fair value of the company with no growth, being way below where it is today. Consequently, I see nothing in 2017 that is going to drive Twitter back to growth, which will put further pressure on the share price.
I continue to see Twitter as a potential acquisition target, but would expect to see the shares touch $10 before real interest is triggered. I see no reason whatsoever to go bargain hunting as there is no bargain to be had.
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