Explore the Twitter report: why the company's revenue is growing, and net profit is falling

Изучаем отчет Twitter: почему выручка компании растет, а чистая прибыль падает

Twitter (NYSE: TWTR) is an American social network, in which users publish short notes in blog format. In terms of popularity, it ranks second in the world in the category of "social networks and online communities" after Facebook, excluding Chinese social media.

In mid-February, Twitter presented a report for the fourth quarter of 2021, which not everyone liked. Key highlights of the report:

  • revenue increased by 21,6% to $1.567 billion and coincided with the market consensus forecast;
  • adjusted EBITDA fell 4% from $0.509 billion to $0.489 billion on the back of higher total expenses, which completely offset the increase in revenue;
  • net earnings per share decreased by 23% from 0,27 to 0,21 $, but turned out to be on 0,05 $ higher than forecast. Adjusted up to 0,33 $ against market expectations in 0,34 $;
  • net debt increased by 38% from 1,499 to 2,066 billion dollars;
  • the board of directors announced a new share buyback in the amount of $ 4 billion.

Disclaimer: if we write, that something went up or down by X%, then by default we mean a comparison with the report data for the same period last year, unless otherwise stated.

Sales structure

Twitter's revenue by type of earnings is distributed as follows:

  1. Advertising Revenue — 90% of the overall result. The company uses algorithms to promote advertising messages, accounts and trends.
  2. Selling Analytics Licenses — 10%. Access to current and historical data of the social network.

By country and region, revenue is divided into two segments:

  1. American market.
  2. International market – it includes all countries of the world, except four states: China, Iran, North Korea and Turkmenistan, who blocked the social network on their territory.

Twitter's total revenue grew by 22% from $1.289 billion to $1.567 billion thanks to strong results from the advertising segment, which increased by 22% to 1.413 billion dollars.

1 January 2022, the management announced the closing of the deal for the sale of part of the business of the licensing segment - the MoPub platform, AppLovin for $1.05 billion in cash. The money from the sale will be used to increase the effectiveness of advertising and the development of Twitter Blue subscriptions. After the transaction, the license segment will change its name to "Subscription and other income".

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Regional markets worked with approximately the same dynamics: the U.S. segment increased by 21% from 0.733 billion to 0.885 billion dollars, international division - by 23% from 0.556 billion to 0.683 billion dollars amid the growth of the Twitter audience and high advertising revenues.

Sales structure of the company, billion dollars

Type of earnings 4к2020 4к2021 The change
Advertising segment 1,155 1,413 22%
Licensed segment 0,134 0,154 15%
Sales geography 4к2020 4к2021 The change
USA 0,733 0,885 21%
International Markets 0,556 0,683 23%
total revenues 1,289 1,567 22%

Profit

Twitter's net profit fell by 18% from 0.222 billion to 0.182 billion dollars due to outstripping growth in total expenses, who grew by 35% up to $1.4 billion. The main reason is the increase in the number of personnel and the increase in the cost of IT infrastructure development and marketing..

To mitigate shareholder anger, board of directors announces new $4 billion share buyback, of which 2 billion will pass under the accelerated ASR procedure.

Financial results of the company, billion dollars

4к2020 4к2021 The change
Revenue 1,289 1,567 22%
Adjusted EBITDA 0,509 0,489 −4%
Adjusted EBITDA margin 39% 31% −8 p. P.
Net profit 0,222 0,182 −18%
Adjusted FCF 0,038 −0,667
net debt 1,499 2,066 38%

What will help Twitter grow in the future

In 2021, former CEO and founder jack Dorsey presented and approved an ambitious development plan until 2023.. The plan outlines two main objectives:

  1. Increase the audience of the social network to 315 million mDAU. Thanks to this, the company's annual revenue will increase to 7.5 billion rubles, and the growth rate of the audience with 13% will grow to 20.5% due to international markets.
  2. Maintaining revenue growth rates at the current level — 21,5%.

Изучаем отчет Twitter: почему выручка компании растет, а чистая прибыль падает

Изучаем отчет Twitter: почему выручка компании растет, а чистая прибыль падает

Management forecasts and comparison with competitors

After the publication of financial results, Twitter management announced two forecasts: for the first quarter of 2022 and for 2022.

Forecast for the first quarter of 2022:

  1. Total revenue for the quarter will grow by 13-23% from 1.036 billion to 1.170-1.270 billion dollars.
  2. Operating loss will be in the range of −0.225 billion to −0.175 billion dollars. For comparison: in the first quarter of 2021 recorded a positive 0.052 billion dollars.

Forecast for 2022:

  1. Option costs of the company will amount to 0.9-0.925 billion dollars.
  2. Capital expenditures will decrease by 5-11% from 1 billion to 0.9-0.95 billion dollars.
  3. The company's annual revenue will increase by about 20% to 6.092 billion dollars.
  4. mDAU growth rates in both regional markets will accelerate compared to 2021.
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Comparison of Twitter multipliers with major American competitors

EV / EBITDA P / E P / S net debt / EBITDA
Twitter 45,04 Otric. 5,64 3,03
Meta Platforms 10,62 15,18 4,99 Otric.
Snap Otric. Otric. 15,58 Otric.
Pinterest 18,79 52,90 6,48 Otric.

What's the bottom line?

Twitter presented mixed financial results in the last quarter of 2021: revenue increased by 22%, and adjusted EBITDA and net income fell by 4% and 18%, respectively.. To somehow brighten up the weak financial results, management decided to increase the buyback. Admittedly, it helped in part..

The future dynamics of the company's share price is largely related to the business plan.. Will the management be able to reach the announced goals?? At the moment, the growth forecast for mDAU looks overstated, and in terms of revenue - quite real. In the last quarter, Twitter's audience grew by only 6 million users, and over the next two years, it should add more than 12 million every quarter., to reach its goal of 315 million accounts by the end of 2023.

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