Twitter

Blue Point Investment Management
10/10/2016
TWITTER
DanielAhmed

Twitter Blue Point Investment Management
Company Analysis- October 10, 2016 Daniel Ahmed
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EQUITY PERFORMANCE & OWNERSHIP:
3 Year Performance History Relative to S&P 500, Facebook & Google
Observation
● Twitter stockhas underperformed the S&P 500 and its competitors since 2014.
● May, 2014 Twitter stock plummeted 18% when a six month lockup period ended.
● Investors were severely disappointed by Jack Dorsey on an earnings conference call in August,2014.
● In the End of April 2015 Twitter's stock dropped 20% after disappointing quarterly earnings were leaked
online before expected release.
● Despite Twitter beating earnings 5 times after the drop Twitter stockhas still been underperforming.
1 Year Performance History Relative to S&P 500,Facebook & Google
Observation
● In a 1 year span Twitter's stockhas plummeted to all-time lows even with the company beating quarterly
earnings.
● Twitter stockfell due to hope of a takeover coming in October 2016 fell.

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Ownership Summary:
Observation
● Largest fund holders are Vanguard Funds, Vanguard Total Stock Mkt Inx that is designed to provide
investor’s exposure to all of the U.S. equity market added 148,990 shares.
● Clear Bridge Aggressive Growth A invests in companies with potential to grow faster than the S&P 500
and it added 3 million shares of Twitter.
● Morgan Stanley Inst Growth seeks long term capital growth, sold 1.5 million shares.
Observation
 ClearBridge Advisors LLC is a privately owned investment management that manages separate client
focused equity and balanced mutual funds, added 11 million shares.
 Morgan Stanley Investment Management Inc. decreased their holding by 1.6 million shares.

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 Wellcome Trust Ltd. operates as a trust of the Wellcome Trust,and offers funding for research in
humanities, social science, and health sectors.Wellcome Trust Ltd. decreased its holding by 7.15 million
shares.
 Fidelity Management and Research Company sold 4.4 million shares.
MEASURE OF FINANCIAL CONDITION:
Observation
 Twitter has a negative interest coverage ratio in 2013 it -90.7, 2014 -15.0, and 2015 -4.6. The ratio is
improving but if Twitter is not able to get a positive result soon the company can face bankruptcy.
 Funded Debt/EBITDA has been decreasing from 2013 and currently stands at -11.6.
 Cash balance for Twitter is significant at 3.5 billion but LTD for Twitter has increased from $1.1 million in
2013 to $1.6 billion in 2015.
 Net Income has been, marginally improving, currently still negative which is very bad for a company that
needs to turn a profit soon.
 Highly leveraged capital structure at 43.6% which included off balance sheet leases.
COMPANY PROFILE
Twitter is a company that hands everyone the power to create/share ideas and inform multiple people at once.
Twitter offers a live service as in live commentary, live connections,and live conversations.Individuals are able to
post about breaking news, entertainment, sports, and everyday topics. To get an idea of the power of Twitter you
simply have to experience hearing about and watching a live event unfold. Twitter's goal is to become the people's

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first screen of information relating to whatever is happening in the world. Twitter aims to build the planet's largest
connected audience.
Twitter 2016 Objectives
● Our User- Twitter is committed to sharpening its core service to better enable people to more easily create,
share and intake content that is shared. Twitter will be focusing on live streamvideo, a service that is
believed to complement the inherent features of twitter. Twitter also plans on providing its creators and
influencer’s better tools to build while connecting their fans/audience through twitter. Twitter is also
aiming to make their platform much safer by integrating technology that will better detect the use of repeat
abusive accounts,making it easier for users to report on harassing content.
● Our Advertisers- Twitter has three main plans to improve their Advertisers ability to connect to their
customers are: 1- Twitter aims to improve upon the canvas their marketers use by implementing video into
promoted products.2- Increasing return on investment (ROI) for advertisers using improved measurement,
along with bidding/relevance capabilities. 3- Leveraging Twitter's global audience by increasing
advertisements scale and reach.
● Our Developers- Twitter is committed to giving developers a platform to build, grow, and generate revenue
with their sites and apps.
Products and Services for Users
● Twitter
○ Allows users to express themselves and engage with their audience on a global platform.
○ Allows userto consumes,and discover content in real time.
○ Media outlets and platforms partners send out tweets surpassing twitter's properties to add to their
content by making it more timely, relevant and comprehensive.
○ Media outlets like BBC, CNN and Times of India constantly use Twitter as a platform.
● Periscope and Vine
○ Periscope is an application that allows an individual or a group to watch live videos.
○ Twitter has add the ability to broadcast from a GoPro camera along with being able to broadcast
live with a tweet.
○ Vine allows a userto create and distribute looping videos that can be as long as six seconds.
Products and services for Advertisers
Twitter partnered with Merkle which is a data driven (CRM), to provide advertisers to have tailored audience
solutions.This provides the ability to create audience segments created from email addresses.
Twitter also partnered with Oracle Social Cloud to improve social service and customer experiences. This
partnership allows Oracle customers to use valuable Twitter data & functionality to create better/game changing
customer service solutions for advertisers.
Twitter's Promoted Products allow their advertisers to promote their respective brands,products,services etc.
Advertisers are able to increase their visibility/reach to consumers while engaging conversation revolving around
their marketing campaigns. Twitter has an Interest Graph that maps the interests of users based on who they follow,
and the type of things a user does on the platform. This allows advertisers to be able to target specific audiences.
● Promoted Tweets
○ Twitter uses a proprietary algorithm along with insight on each user's interest graph, that delivers
sends targeted Promoted Tweets to a user.
○ Twitter aims for its advertisers to create successfulmarketing campaigns, paying for useractions
that are wanted by the advertisers marketing goals.

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○ Promoted Tweets have received upgraded features like Tweet engagements,app installs or
engagements,website clicks or conversation or video views.
● Promoted Accounts
○ Appear exactly like suggested accounts created by who to Follow recommendation engine.
Promoted accounts can also appear in a user's timelines.
○ Promoted accounts gives an advertiser to grow an interested user base.
● Promoted Trends
○ Appear at the top of trending topics list for 24hrs in a country or worldwide.
○ When a user clicks on a promoted trend a Promoted Tweet created by Twitter's advertisers is
shown at the top of the results.
○ Twitter displays one Promoted Trend a day per location.
Twitter's platform allows customers to be able to advertise around the mobile ecosystem,on Twitter’s properties,
along with third party publisher’s websites, applications etc. Twitter allows their advertisers to go beyond Twitter to
reach their audiences.
● MoPub
○ Twitter's mobile focused advertising exchange.
○ Ad Serving, ad network mediation along with real time bidding exchange.
○ Comprehensive monetization platform
● Twitter Audience Platform
○ Allows advertising to expand advertising campaigns using Twitter Promote Products to targeted
audiences off of Twitter's platform.
Developers on Twitter
Twitter is providing developers tools, public APIs and embeddable widgets that allows them to add their material to
Twitter's platform and vice versa.Twitter aims to make it easier for developers to easily integrate into their platform.
Data Partners
Twitter has subscription based accessesto its public data feed for partners who want to have access beyond Twitter's
public API. Twitter has “Gnip” branded products/services that have valuable data sets which helps improve
developers and business insights and build products.
Sales by Segment
Observation
 Advertising Services has seen a 111% increase from 2013 to 2014 and a 59% increase from 2014 to 2015.
Data licensing and otherincreased 109% from 2013 to 2014 and 52% from 2014 to 2015.

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 Advertising revenue from the sale of Twitters advertising services on its own platform generated $1.8
billion in 2015. Revenue from third party websites and applications was $194.2 million vs $11.4 million in
2014. The growth was partly due to the Acquisition of TellApart.
 Data licensing and otherrevenues increase was mostly due to the growth in mobile advertising exchange
services along with increase in data licensing fees thanks to “Gnip” products.
Mergers & Acquisition
Observation
 Magic Pony Technology Ltd. which builds out technology in image processing.
 TellApart Inc. which leverages data to drive sales through personalized marketing across digital channels
and devices. TellApart Inc. brings personalization, unique products ads and commerce data that will allow
Twitter to supply cross-device targeted ads to clients.
COMPETITIVE ANALYSIS:
Supply and Demand Analysis:
Social media platforms are a relatively new business that allows people to communicate, share and connect with
each other thanks to the internet. These platforms became so popular thanks to the millions to billions of people that
are using them that even the advertising industry has begun strategically using these platforms to target audiences.
In July 2015 the population of the world was about 7.3 billion people, 3.17 billion users of the Internet and 2.3
billion active social media users.Everyday about 1 million new social media users are added. Facebook has the
largest active user base around 1.59 billion, WhatsApp has around 1 billion users,Instagram’s at 400 million users,
Twitter’s at 320 million.
U.S. Online advertising revenue increased 17% in 2013, 16% in 2014, 20% in 2015 and CFRA estimates increases
of 17% in 2016 and 16$ in 2017. Corporations are using a larger percentage of their advertising budget to these
platforms since people are spending more of their time on the internet and mobile devices.Internet and mobile

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marketing offers the advertising enhanced targeting and data focused return on investment (ROI). Mobiles have also
been increasing along with the Internet to account for over $20 billion in U.S. advertising sales in 2015.
The inevitable and constant adaptation to new technologies that allow for devices to use the internet is a positive for
companies to have interactive marketing. Mobile advertising currently is priced lower then online advertising.
Mobile platforms are not introducing video advertising capabilities that should close the gap. Facebook live has had
great success on mobile devices.
U.S. online retail sales are increasing with 10% in 2013, 8% in 2014 and 18% in 2015.Internet retail offers more
array of selections,unlimited store access along with time convenience.Retailers that have increased their selling
channel online and physical, along with improved marketing abilities amongst other things have seen considerable
growth.
Pricing Power: LOW
Twitter ads are priced at a premium, but is facing threats from other social media companies like Instagram and
Snapchat. In 2013 Facebook lowered its minimum reserve price which in turned increased the number of advertisers
on its platform. Twitter is working on lowering in prices and increasing the ROI advertisers get.
Market Share Trends:
Twitter has been drastically losing ground to Facebook since day one, but is now losing to WhatsApp and Instagram
as well products that are owned by Facebook. When you look at the age range of 18-34 engagement you clearly see
Facebook who has above a 90% reach with in this age group and an average of 1,000 minutes of use per month,
followed by Snapchat, Instagram and then you have Twitter which has around a 52% reach and under 200 average
minutes monthly use.
Competition:
● Direct competition is provided by Facebook and Google along with regional social media/messaging
platforms that have a strong audience in certain countries.
● Developers of applications that focus on mobile user to be able to create and send out content to the
masses.
● Any online/mobile business that give markets the opportunity to reach a large audience, create tools and
systems for managing and optimizing advertising campaigns.

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● Instagram and Snapchat have also targeted the mobile advertising business.
Strengths:
Global Brand
 80% of users live outside the U.S.
 Users speakmore than 35 languages from around the globe.
Revenue
● Sales from 2010 to 2011 grew 276%, from 2011 to 2012 it grew 198.1%, from 2012 to 2013 is grew
109.8%, from 2013 to 2014 it grew 111% and from 2014 to 2015 it grew 58.1%.
Cash & Short term Investments
● Cash on balance sheet is currently at $3.49 billion dollars.
● Twitter has had a large cash balance since 2013
● Current cash balance is larger than total current liabilities and total liabilities.
Live Streaming
● Twitter has live streamed Wimbledon Tennis along with the Republic and Democratic national’s
conventions.
● Twitter recently struck deals with NFL MLB, NHL, and exclusive content.
● Signed a deal with a SKY Sports to stream highlights and key moments from the English Soccer club,
Premier League, and select programs from Bloomberg TV.
● Deal with Cheddar to steamopening and closing of the stock market.
Sharing Revenues
● Twitter will start sharing its revenue to people who post videos on its platform.
Free Cash Flow
● Twitter finally recorded positive free cash flows in 2015. From 2010 to 2014 free cash flows were negative.
Risks:
Solvency Risk
 Twitter is burns through cash heavily and if the company cannot produce positive cash flows soon then the
company will face bankruptcy from not being able to service its debt.
 Twitter has high off balance sheet debt that is growing steadily.
Failure to user base/user engagement/ad engagement
● Financial performance for Twitter is highly dependent on usergrowth. Increasing the number of users and
increasing their daily engagement on the platform along with increasing engagement with ads.
● Twitter anticipates that their user growth rate will decrease as user base increases.
● Factors that can negatively affect twitter are influencers, world leaders, high officials, celebrities, athletes,
teams, news sources and large companies use anothersource to use other products that replace Twitter for
them.
Expansion in International Markets
● Inability to grow products/services because ofcompetition, advertiser demand, differences in digital
advertising market/digital advertising conventions compared to in the U.S.
● Most users in emerging markets like Pakistan or India use feature phones instead of smartphones and prefer
to communicate through SMS messaging.
● 80% of Twitter's Monthly Active Users “MUA” for three months ended December 31st, 2015 were from
outside of the U.S.
Technical Talent
● Technical talent is a huge part of Twitter's day to day operations.Twitter has to compete daily with
Facebook, Google, and Microsoft etc. to find and retain the best technical talent possible.
Active Users

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● Facebook has monthly active users of 1.59 billion and Instagram has monthly active users of 400 million.
● Twitter has monthly active users of 320 million.
● Snapchats daily active users of 150 million has surpassed Twitter's 140 million.
MANAGEMENT:
Name Age Position
Jack Dorsey 39 CEO
Adam Bain 43 COO
Anthony Noto 47 Chief Financial Officer
Adam Messinger 44 Chief Technology Officer
BOARD OF DIRECTORS:
Observation
 Omid Kordestani provides skilled leadership as he was previously the Senior Vice President and Chief
Business Officer for Google Inc. He also has experience in Global Sales and Business Development.
 Jack Dorsey the CEO and Co-Founder of Twitter is on the Board of Directors. Jack Dorsey has also
founded Square a mobile payment processor.

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Observation
 Martha Lane Fox co-founded “lastminute.com” which is a travel and leisure website. She is also the
founder and chairperson for “doteveryone.org.uk” an organization that teaches and explains internet
enabled technologies.
 Multiple executives for various brands that can use Twitters platforms and valuable data information are on
Twitters board.

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Observation
 Bret Taylor is the CEO and Co-Founder of Quip, and formerly Chief of Technology at Facebook.
 Twitter Board of Directors all have unique Experience from successfulcompanies like Facebook, Google
along with websites and startup companies.
 Evan Williams one of Twitters founders,along with being a CEO of Medium an online publishing
platform.

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Observation
 Jack Dorsey to compensation is $68,506 the lowest for anyone in Twitters management. Jack Dorsey is
split responsibilities between two companies and is not able to give Twitter the leadership is currently.
 Anthony Noto total compensation was $72.7 million in 2014 and went to $401k in 2014. Anthony Notto
was previously managing director of Goldman Sachs and CFO of the National Football League.
 Alex Roetter previously the Director of Engineering at Laufer Wind Group where he developed radar
technology for renewable energy.

SUMMAERY OF MOST RECENT QUARTELRY RESULTS (Q2 2016)
Observation
● Second quarter reported a 20% year over year revenue of $602 million. Advertising revenue grew 18% year
over rear generating $535 million. Owned & Operated advertising revenue grew 15% year over year
generating $481 million. Non-O&O advertising revenue reached $54 million contributing to 10% of overall
advertising revenue.
● Promoted Tweets with video capability has become largest revenue stream.

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● Ad engagements grew 226% YOY, because of adoption of auto play video and increased ad load. The cost
fell 64% YOY thanks to a shift in auto-play.
Observation
● Net loss in Q2 was $107 million compared to Q2 in 2015 with a net loss of $137 million. Non-GAAP net
income was $93 million.
● Adjusted EBITDA was about $175 million, $20 million higher than expected.
Observation
● Mobile MAUs made up 82% of MUAs
● In Q2 broadcasts on periscope are no longer limited to 24hrs along with broadcasting from a DJI supported
drone. Periscope also launched a new feature called Highlights that allows you to see a short replay for
each periscope replay.
2016 Quarter 2 Business
● Magic Pony machine learning/visual process technology will help deliver high quality streaming video.
Outlook
● Revenue expected to be in the range of $590-$610 million for Q3. EBITDA expected to be in the range of
$135 million-$150 million.
● For 2016 capital expenditures are expected to be between $300 million to $375 million.

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CONSENSUS EARNINGS ESTIMATES:
Earnings Estimates
Earnings Estimates Quarter 3, 2016 Quarter 4,2016 Current Year Next Year
No. of Analysts 33 32 37 38
Avg. Estimates 0.09 0.14 0.51 0.58
Low Estimate 0.04 0.09 0.42 0.36
High Estimate 0.15 0.23 0.66 0.81
Year Ago EPS 0.1 0.16 0.4 0.51
Observation
 Analysts are expecting Twitter earnings for Q3, Q4, 2016 and 2017 to beat previous year.
 Analyst expect a big jump for EPS in 2017 going to 0.51 from 0.4 in 2016.

Revenue Estimates
Revenue Estimates Quarter 3, 2016 Quarter 4,2016 Current Year Next Year
No. of Analysts 33 32 37 37
Avg. Estimates 606.4M 754.72M 2.56B 2.87B
Low Estimate 590M 706.96M 2.51B 2.62B
High Estimate 625.87M 873.24M 2.7B 3.35B
Year Ago EPS 569.24M 710.47M 2.22B 2.56B
Sales Growth 6.50% 6.20% 15.30% 12.40%
Observation
 Analysts expect Twitter to improve earnings in Q3 and Q4 having sales growth of 6.5% and 6.2%.
 Revenue Expectations for Twitter for 2016 are as high as $2.22 billion and $2.56 billion in 2017.
EPS History
Earnings History 9/29/2015 12/30/2015 3/30/2015 6/29/2016
EPS Est. 0.05 0.12 0.1 0.1
EPS Actual 0.1 0.16 0.15 0.13
Difference 0.05 0.04 0.04 0.03
Surprise% 100.00% 33.30% 50.00% 30.00%
Observation
 Twitter has beaten EPS estimations for four quarters straight dating back to 9/29/2015.

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CONCLUSION: HOLD
Twitter currently has a leadership problem where the CEO Jack Dorsey is split between two companies Twitter and
Square. Management is also being paid enormous salaries that are not justified since Twitter has not been able to
post positive earnings yet. Anthony Notto was paid $72 million in 2014 and Alex Roetter made $19 million. The
cost to have these people on the management team may not be worth the return they have given at the moment.
Twitter is a company that does have value, it is a global brand that has 80% of its users outside of the U.S. Twitter
has also invest and made deal with multiple sports to live stream events adding to its existing nature of updating
users on the most current things happening. Twitter also has valuable data software that any company will find
useful. Twitter has an Interest Graph that maps a user’s preferences on its platform and then is able to send targeted
advertisement to each user. Twitter allows partners to have subscription based access beyond its public data API,
“Gnip” products/services allow partners to improve business insights and products.
Financial Statement Analysis
Revenue tripled in 2012 to $317 million, doubled in 2013 to $665 million, more than doubled in 2014 to $1.4 billion
and crossed the $2 billion mark in 2015 generating $2.2 billion.
Net Income for Twitter however has been constantly negative.In 2013 net income was -$645.3 million, 2014 -$577
million and 2015 -$521 million.
Cash balance is currently at $3.49 billion in cash & short term investments which can be used towards infrastructure
and internal expansion and acquisitions.Long Term Debt is currently at $1.5 billion in 2015.
Intangible Assets have been increasing constantly from 2012 to 2013 a 507.9%, 2013 to 2014 a 64.9% and 2014 to
2015 a 73.7% to reach $1.2 billion.
Total Shares outstanding are 707.7 million below the industry average of 922.2 million.
Valuation
Twitter's stock performance has not been good, it is down nearly 52.05 from its IPO and from its peak the stockis
down 71% currently trading at $19.85. Twitter though has constantly had net losses and the company going
bankrupt is a good possibility. Twitter does not pay a dividends and will not be able to pay dividends any time soon.
Twitter has the least sales when compared to competitors like Facebook, LinkedIn, and Alphabet A, average sales
for the industry is $22.6 billion.
Twitter has -317.9 EBIT, where EBIT for Facebook is $8.8 billion, Alphabet A is $20 billion. Yahoo and LinkedIn
companies that ended up being acquired both had negative EBIT.
Twitters Enterprise Value/EBITDA is 351.22x well above the industry average of 57.57x and Facebook 31.51x,
Alphabet A 121.45x who have had much better financial success. Twitter has a really high EV/EBITDA multiple
since they have negative earnings since the companies existence.

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