Things May Start To Move Faster For Twitter

Elliott Management has set its eyes on Twitter for more than a year and is pushing for profitability and sales growth. Not a bad thing given Twitter’s large audience and extensive possibilities. The stock took off at the start of the year, reaching a 52-weeks high of $ 80. However, following a tepid earnings report, the stock fell back to $ 55.

“Since March 2020, Twitter has rolled out and discussed several new features, reversing years of criticism about its slow pace. A few of them are plainly derivative: Stories (as seen previously in Instagram), Spaces (audio chat rooms a la Clubhouse), and Fleets (Snapchat-style disappearing messages).”

“But there’s a more significant one on the horizon. Twitter says it will add the ability to charge subscriptions for content on its site, a new revenue stream for the company and its first move to lure in users looking to create communities on the site—while earning as influencers do on competitors such as TikTok, Instagram and Snapchat.” by Abram Brown for Forbes

Twitter is now trading at 10 times sales, cheaper than its rival Snapchat and in line with Facebook.

  • In the base case, Twitter would maintain a 20% growth rate into 2023, which would give it sales of around $ 5.4B. The company’s market cap would then reach $43B, with a Price To Sales ratio of 8. Meaning that the company is currently fairly valued
  • In the relatively more optimistic scenario, Twitter manages to grow by around 28% a year through 2021 and 25% through 2022. Twitter would then generate around $ 6B in sales. At a price to sales ratio fo 9, the company could reach a $ 53B market cap
  • However, regulators in the U.S. and elsewhere could seek to limit the power of social media giants. This would pressure social media stocks significantly

BENCHMARK’S TAKE

  • Twitter is deploying an aggressive sales and profitability push in order to monetize its loyal user base
  • The company is now fairly valued and offers an interesting entry point for patient investors
  • Investors should watch out for any regulatory news on social media companies

We have increased our position in Twitter to 1.5% (approx.).


Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Disclosures

The author has a position in Twitter, Inc. The author has no business relationship with any company mentioned in this article and the author is not receiving any form of compensation for this article other than contributions from paying subscribers.

Credits

Photo by Jeremy Zero on Unsplash.