Twitter, Inc.
Twitter, Inc. (NYSE: TWTR) is a short-form text, image, video chat platform and open distribution network. An interest graph is created when users create multiple social networks based on their shared interests. The sale of advertising services accounts for the vast majority of the company's revenue. TWTR also generates revenue by licensing its data and offering mobile ad exchange services to other businesses.
Why Should Investors Book Profit?
- Margin Stress: The company reported gross margins of 64.6% in FY21 (ended December 31, 2021) compared to the industry Median of 72.3%, indicating significant stress on the topline performance. Further, the company reported a net loss of USD 221.41 million in FY21.
- Leveraged Balance Sheet: The company is more exposed to balance sheet risk than its peers, with a Debt/Equity ratio of 0.58x as of December 31, 2021, compared to the industry norm of 0.29x. Furthermore, its long-term debt-to-total-capital ratio was 36.8%, compared to the industry average of 17.9% for the same period. These leveraged financials put the corporation at risk of huge swings due to the slightest adjustment in interest rates.
- Open Source Risk: The company's products and services employ open-source software, and it will continue to do so in the future. The risk associated with open source licensing requirements is that open-source software may represent more hazards than third-party commercial software because open source licensors often do not give warranties or controls on software provenance.
- Technical weakness: TWTR’s prices moved up by ~52.49% from the recommended entry price and made a high of USD 54.57 on April 05, 2022. Price reached a crucial resistance level of USD 54.57 but were unable to break this level, indicating the possibility of a downside correction which may lead the prices towards the resistance turned support level USD 44.50. On the daily chart, RSI (14-period) is reached an overbought zone at 84.42 levels, supporting a downside correction. However, prices are still sustaining above the trend-following indicators 21-period SMA and 50-period SMA and may act as the support levels for the stock.
Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation
(Analysis by Kalkine Group)
* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation:
TWTR's share price has inclined 56.72% in the past month and is currently trading close to the mid-point of its 52-week range of USD 31.30 to USD 73.34. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 64.75.
Considering the company's leveraged balance sheet, weak margin profile, current valuation and associated risks. we recommend a "Sell" rating on the stock at the current price of USD 50.98, as of April 05, 2022.
1-Year Technical Price Chart (as of April 05, 2022). Source: REFINITIV, Analysis by Kalkine Group
* The reference data in this report has been partly sourced from REFINITIV.
* All forecasted figures and industry information have been taken from REFINITIV.
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