...So much of what I read in the financial media (not on Twitter, as I deactivated my account last week) on stocks is subjective, numbers-free blather, and in fact quite useless. So I have made it clear that Twitter is awful AND awfully overvalued, but let's focus on the second part.
How about a little actual financial analysis to bolster an opinion on a stock? Trust me, it feels good, almost as good as deleting your Twitter account!
First, we start with revenues. I am limited in space in this column, so won't have time to delve into Twitter's profitability metrics, but we live in a world where tech companies are valued based multiples of "revs," so I will stick with that. The key to any analysis of financial statements is disaggregation.
For Twitter we start -- and finish -- with the one metric given by management: mDAUs, or monetizable daily active users. Twitter changed to this metric in February 2019, and, in and of itself, it is meaningless. But it is a good base for modeling. Twitter's recent quarterly report showed 187 million mDAUs with 36 million users in the U.S., and 152 million abroad. I am assuming the difference is due to rounding.
That's where Jack Dorsey's ship will start to sink. Twitter -- and every social media company -- receives a strong valuation based on user base figures that are full of people who don't actually use the service, but do have an account. But with this latest movement -- of which I am glad to be a part -- folks are deactivating their Twitter accounts, not just ignoring them.
Those user numbers are going to plummet. I would expect this to happen when first-quarter figures are reported in April, not as much when full-year results are reported Feb. 9. How low can they go? Well Twitter's mDAU base is small to begin with, so that the initial drop-off will be quite noticeable.
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Even after this week's pullback, TWTR shares, inexplicably, were trading at slightly above 10x trailing revenues as of Thursday's close. But, using our "true" revenue estimate of $1.25 billion, we derive a fair value for TWTR of $15.63. This ignores the fact that TWTR had over $7 billion of cash on its balance sheet as of Sept. 30, and valuation is as much an art as a science, but I am just doing a back of the envelope here.
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More:
https://realmoney.thestreet.com/inve...alued-15540574
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