Summary
Last year, Disney was in talks with Twitter regarding a buyout.
We believe that by focusing on its safety, Twitter is paving the way for a buyout.
For patient investors, we rate Twitter as a "buy."
We are strong believers in Twitter's (TWTR) brand value. While the stock is expensive when using traditional valuation metrics, it's not when using the new valuation methods of this world 0 data and scale. At 4.7x LTMs sales and a negative revenue growth rate, it's evident that there is plenty of hope in the platform by Wall Street investors. And it seems that management is working on selling the company as its focus on safety and daily users shows.
Twitter buyers (including us) are hoping that the platform's value would be unlocked through an acquisition. We believe that an acquisition is imminent and that it's just a matter of time (or price?) before an acquirer jumps in to save the day.
In our view, Disney (DIS) is the most likely bidder as its troubled-ESPN desperately needs an online platform. If you remember, in September last year, it was known that Disney was in talks to consider a Twitter bid. However, the deal didn't reach light as Twitter's abuse and troll problems were a major issue for Disney.
Now, it seems that management is solely focusing on solving this problem. In its latest 8K, the company stated the following:
We’re also continuing to make Twitter safer, and we’re seeing results. Our data shows that we’re now taking action on 10X the number of abusive accounts every day compared to the same time last year, and we now limit account functionality or place suspensions on thousands more abusive accounts each day. We’ve found that accounts who experience this period of limited functionality subsequently generate 25% fewer abuse reports, and approximately 65% of these accounts are in this state just once. In addition, our Quality Filter has led to fewer unwanted interactions: blocks after @mentions from people you don’t follow are down 40%. While there is still much work to be done, we believe people are experiencing significantly less abuse on Twitter today than they were six months ago.
And if you have read the company's CC you would have noticed that the company is not focusing on increasing MAUs, instead, it's main focus is increasing user experience which will lead to higher DAUs.
...our priority is on DAU and focus on driving daily usage, and so much room that's left in driving DAU growth relative to MAU growth.
Management knows that a DAU increase is not enough to make the stock a buy at current levels as the most it can make, if it's able to reach Facebook's (NASDAQ:FB) ARPU, is to generate $10 billion per annum. This gives Twitter a value of 1.1x best-case sales. That's reasonable for an acquirer as adding some synergies would make the company worth investing in. However, for a retail investor, it's not. That's why the stock is down 20% since reporting flat MAUs.
We believe that Twitter is implicitly trying to sell itself. By focusing on safety and DAUs, it's giving more reason for Disney, or any other interested party, to buy the company.
It's highly likely that Disney told Dorsey that it would consider a bid if the safety concern is taken care of. This makes Dorsey's share purchases not considered "insider trading" as there is a major condition for the buyout to take place.
I've read some comments here on SA arguing that if Dorsey stopped worrying about being the world's policeman, Twitter would perform better. We believe that's a look at the empty half of the glass as Dorsey's focus on being the world's policeman is the main reason Twitter would be bought in the future.
We are long Twitter due to our bet on an imminent buyout. For patient investors, buying the stock at current levels may offer a decent profit. However, we don't recommend short/medium-term investors to be long at current levels as a buyout may take months or even years.
Last year, Disney was in talks with Twitter regarding a buyout.
We believe that by focusing on its safety, Twitter is paving the way for a buyout.
For patient investors, we rate Twitter as a "buy."
We are strong believers in Twitter's (TWTR) brand value. While the stock is expensive when using traditional valuation metrics, it's not when using the new valuation methods of this world 0 data and scale. At 4.7x LTMs sales and a negative revenue growth rate, it's evident that there is plenty of hope in the platform by Wall Street investors. And it seems that management is working on selling the company as its focus on safety and daily users shows.
Twitter buyers (including us) are hoping that the platform's value would be unlocked through an acquisition. We believe that an acquisition is imminent and that it's just a matter of time (or price?) before an acquirer jumps in to save the day.
In our view, Disney (DIS) is the most likely bidder as its troubled-ESPN desperately needs an online platform. If you remember, in September last year, it was known that Disney was in talks to consider a Twitter bid. However, the deal didn't reach light as Twitter's abuse and troll problems were a major issue for Disney.
Now, it seems that management is solely focusing on solving this problem. In its latest 8K, the company stated the following:
We’re also continuing to make Twitter safer, and we’re seeing results. Our data shows that we’re now taking action on 10X the number of abusive accounts every day compared to the same time last year, and we now limit account functionality or place suspensions on thousands more abusive accounts each day. We’ve found that accounts who experience this period of limited functionality subsequently generate 25% fewer abuse reports, and approximately 65% of these accounts are in this state just once. In addition, our Quality Filter has led to fewer unwanted interactions: blocks after @mentions from people you don’t follow are down 40%. While there is still much work to be done, we believe people are experiencing significantly less abuse on Twitter today than they were six months ago.
And if you have read the company's CC you would have noticed that the company is not focusing on increasing MAUs, instead, it's main focus is increasing user experience which will lead to higher DAUs.
...our priority is on DAU and focus on driving daily usage, and so much room that's left in driving DAU growth relative to MAU growth.
Management knows that a DAU increase is not enough to make the stock a buy at current levels as the most it can make, if it's able to reach Facebook's (NASDAQ:FB) ARPU, is to generate $10 billion per annum. This gives Twitter a value of 1.1x best-case sales. That's reasonable for an acquirer as adding some synergies would make the company worth investing in. However, for a retail investor, it's not. That's why the stock is down 20% since reporting flat MAUs.
We believe that Twitter is implicitly trying to sell itself. By focusing on safety and DAUs, it's giving more reason for Disney, or any other interested party, to buy the company.
It's highly likely that Disney told Dorsey that it would consider a bid if the safety concern is taken care of. This makes Dorsey's share purchases not considered "insider trading" as there is a major condition for the buyout to take place.
I've read some comments here on SA arguing that if Dorsey stopped worrying about being the world's policeman, Twitter would perform better. We believe that's a look at the empty half of the glass as Dorsey's focus on being the world's policeman is the main reason Twitter would be bought in the future.
We are long Twitter due to our bet on an imminent buyout. For patient investors, buying the stock at current levels may offer a decent profit. However, we don't recommend short/medium-term investors to be long at current levels as a buyout may take months or even years.