Summary of Twitter’s financials and outlook
- Twitter is a very young company with unknown revenue potential
- Advertising accounts for 87% of revenue with Data Licensing accounting for 13%
- Advertising revenue of $121 million in the June quarter grew 113% year over year
- Timeline view growth is slowing with U.S. views only growing 3% quarter over quarter in June
- Total 2015 revenue projected to be $1.8 billion from $317 million in 2012
- Increasing monetization per user is critical, especially international users
- Currently losing money with potential to be profitable in 2015
- Positive operating cash flow in the first half of 2013
- Stock valued at $20.62 for a market cap of $12.7 billion in its last private valuation
- If stock is priced at $25 combined with 40 million IPO shares the market cap will be $16.4 billion
One of the major challenges for the company and shareholders is the immaturity of the company. I don’t mean management is immature but that the business is in its infancy. The first tweet was sent out on March 21, 2006, and it was just two years ago that the company broke the $100 million yearly revenue run-rate with $26 million in the September 2011 quarter.
I would characterize the company as being in the toddler stage. It has learned to walk but will bump into various objects over the next few years. There will be major successes and failures. While it could work out very well in the long-run for shareholders I expect there to be major downdrafts in the shares at times, especially since the timing between quarterly reporting and being able to recover from mistakes or a slower revenue ramp than expected could lead to a miss in short-term numbers.
The company will be embarking on many initiatives to increase users, usage and monetization. From its S-1 filing it wrote “We plan to continue to build and acquire new technologies to enable our platform partners to distribute content of all forms.”
Twitter is a gateway to content
In some ways Twitter is similar to Google in that people use Google search to find information and then go to that site. With Twitter it can be used to receive content you are interested in which I believe is more valuable to an advertiser since the user is already interested in what they are receiving. As Twitter experiments with leveraging its platform it could hit on various veins of gold.
Twenty three of the top twenty five people with the most followers are in the entertainment industry with the other two being soccer players (or
Source: IZEA
Total company revenue
Twitter generated $121 million in advertising revenue in the June quarter, an increase of 104% year over year and 87% of its total revenue. Data licensing generated $18.3 million for 54% growth and 13% of total revenue.
Advertising only generated $7 million in revenue for all of 2010 and is on track to exceed $500 million this year. While this is amazing growth and coming in at 105% if the company hits my $551 million projection for all of 2013 its growth rate has been ratcheting down from 317% in the June 2012 quarter to 113% in the June 2013 quarter. In my model I have advertising revenue growth continuing to decline in each quarter as the company continues to grow and it becomes harder to maintain such a high level of growth. In the fourth quarter of 2015 I’m projecting advertising revenue of $490 million with a still very healthy 53% year over year growth.
Twitter is at a very early stage of figuring out how to balance generating revenue while not impeding the user experience. Twitter could get to $1 billion in advertising revenue in 2014 for 83% growth and $1.6 billion in 2015 or 58% growth.
The company also sells its data to firms so that they can analyze historical and real-time pubic Tweets and their content. The top five data licensees accounted for 75% of Data Licensing revenue or about 10% of total revenue for the first half of the year.
Data Licensing was 35% of revenue in the March 2011 quarter at $6.3 million but has ratcheted down in importance until it is now only 13% of revenue in the June 2013 quarter at $18.3 million. As Twitter’s user base grows more firms may be interested and the company may be able to charge more. I have this segment’s revenue projected to be $190 million in 2015 or 11% of revenue with 51% year over year growth for the year.
Advertising revenue by geography
Total advertising revenue increased by 113% in the June quarter but there are major differences between U.S. and International metrics. Based upon the number of Timeline views times the ad revenue per 1,000 Timeline views you can calculate the advertising revenue for each region.
U.S. advertising
U.S. advertising revenue was $165 million in the first half of 2013, an increase of 89% year over year. However its growth did trend down from 97% in the first quarter to 83% in the second quarter.
Twitter’s U.S. ad revenue per 1,000 timeline views has increased from $1.70 in the March 2012 quarter to $2.17 in the June 2013 quarter or 28% in five quarters. This has led to the revenue per monthly active user to increase from $1.15 to $1.79 over the same timeframe, an increase of 56%.
Note that the Timeline views of 40.6 billion in the June quarter only increased 3% from the March quarter. Twitter will need to increase this metric, which could be challenging since this means its 49.2 million active users already accessed Timelines 9 times per day during the quarter.
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