With twitters margins expanding and eps growing

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With Twitter’s margins expanding and EPS growing faster than sales, the stock’s valuation metrics have come down from the stratosphere. Our blended valuation for Twitter has now reached the $50s. We are cognizant of the risk of further share-price turbulence as the company works to sustainably grow advertising revenue and MAUs. We recommend TWTR for highly risk- tolerant investors prepared for further fluctuations in the share price. EARNINGS & GROWTH ANALYSIS For 1Q18, Twitter reported revenue of $665 million, which was up 21% year-over-year and down a less than seasonal 9% from the peak fourth quarter. Revenue exceeded the $604 million consensus call, marking a fourth consecutive quarter of far exceeding consensus. Non-GAAP earnings totaled $0.16 per diluted share, up 53% from $0.11 a year earlier and down $0.05 in 4Q17. Non- GAAP EPS topped the consensus by $0.05, also the fourth-straight above-consensus result. Twitter generated full-year 2017 revenue of $2.44 billion, down 3% from $2.53 billion in 2016. Non-GAAP earnings for 2017 totaled $0.47 per diluted share, down 17% from $0.57 per diluted share in 2016. For 2Q18, Twitter is modeling adjusted EBITDA of $245-$265 million, with an adjusted EBITDA margin of 37%-38%; that would signal revenue of $671-$690 million. The pre-reporting consensus was $636 million. Based on margin progress to date and improving MAU monetization, we believe Twitter can continue to deliver EPS growth at a faster pace than revenue growth. We have increased our 2018 non-GAAP EPS forecast to $0.63 per diluted share, from $0.53. We are raising our preliminary 2019 non-GAAP EPS forecast to $0.78 per diluted share, from an initial $0.60. Our long-term EPS growth forecast is 12%.
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M ARKET D IGEST - 20 - FINANCIAL STRENGTH & DIVIDEND Our financial strength ranking for TWTR is Medium. Cash totaled $4.53 billion at 1Q18. Cash totaled $4.40 billion at the end of 2017, $3.66 billion at the end of 2016, $3.50 billion at the end of 2015, and $3.62 billion at the end of 2014. Debt totaled $1.65 billion at 1Q18. Debt was $1.63 billion at the close of 2017, $1.52 billion at the end of 2016, $1.49 billion at the end of 2015, and $1.37 billion at the end of 2014. Twitter had no debt as of the end of 2013. In 2012, Twitter ended the year with approximately $860 million in convertible preferred shares. Twitter is a relatively new growth company. As such, we do not expect it to pay a dividend for the foreseeable future. While Twitter might opportunistically repurchase shares, it is not an active buyer of its stock, despite rapid inflation in the share base due to stock option compensation. MANAGEMENT & RISKS Co-founder Jack Dorsey was reappointed as the company’s CEO following the departure of Richard Costolo. Anthony Noto, who served as COO, left the firm. Ned Segal is CFO. Omid Kordestani is executive chairman of the board. Risks for Twitter include intense and constantly changing competition and new offerings in the social media space, potential user and advertising defection to newer platforms, a long history of GAAP losses, and potential and actual slowing in key business metrics. We believe that the company’s focus on its core product, strong compatibility with mobile devices, and
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