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Is Twitter Stock a Buy? | The Motley Fool

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The social-media company’s stock dropped after a messy Q3 report.

Key Points

  • Twitter’s mixed Q3 report disappointed investors.
  • Its advertising business remains healthy, but expenses are rising.
  • Twitter could struggle to hit its ambitious 2023 targets.

Twitter‘s (NYSE:TWTR) stock tumbled 11% on Oct. 27 after the social-media company posted a mixed third-quarter earnings report. Revenue rose 37% year over year to $1.28 billion, which matched Wall Street’s estimates. But it also posted a net loss of $537 million, or $0.67 per share, which missed expectations by $0.85 and dropped sharply from its net income of $29 million, or $0.04 per share, a year earlier.

That loss was caused by a one-time litigation charge of $766 million to settle a class-action lawsuit, which was initially filed in 2016 by investors who accused the company of using misleading engagement metrics.

An annoyed person looks at a smartphone.

Image source: Getty Images.

For the fourth quarter, Twitter expects its revenue to rise 16%-24%, which matches expectations for 22% growth. However, that forecast still includes its revenues from MoPub, the mobile advertising network it plans to sell to AppLovin in the first quarter of 2022. It expects its operating income to turn positive again in the fourth quarter but still decline 29%-48% year over year as it ramps up its investments.

Twitter’s numbers were messy, and it’s easy to see why investors headed for the exits. But is that sell-off also creating a buying opportunity?

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Reviewing Twitter’s core growth metrics

Twitter’s monetizable daily active users (mDAUs) increased 13% year over year (and 2% sequentially) to 211 million during the quarter. That represents a continuation of its stable mDAU growth over the past year:

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mDAU Growth

Q3 2020

Q4 2020

Q1 2021

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Q2 2021

Q3 2021

QOQ

1%

3%

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4%

4%

2%

YOY

29%

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27%

20%

11%

13%

Source: Twitter: QOQ = quarter over quarter. YOY = year over year.

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Twitter’s international mDAUs increased 14% year over year to 174 million during the third quarter, but its U.S. mDAUs only rose 3% to 37 million. However, Twitter still generated 58% of its revenues from U.S. users. International growth was led by Japan, which accounted for 29% of the company’s international revenue and 12% of total revenue.

Just like Facebook, Pinterest, and Snap, Twitter is trying to gradually increase its monetization of overseas users to reduce its overall dependence on the U.S. market.

Twitter’s ad revenues, which accounted for 89% of its top line, jumped 41% year over year as it benefited from the Olympics, experienced a 6% increase in ad engagements, and only saw a “modest” impact from Apple‘s privacy update for data-tracking apps on iOS. Its cost per engagement (CPE), which an advertiser pays for every engagement of an ad, also surged 33% against the pandemic’s initial impact a year earlier.

What are investors worried about?

Twitter’s core advertising business looks healthy, but it expects its sale of MoPub to reduce total revenue by $200 to $250 million in 2022. The company doesn’t expect to offset that loss with the growth of its other businesses next year, but it also said the sale won’t change its goal of generating more than $7.5 billion in annual revenue by 2023 — which would represent a big jump from Wall Street’s expectations for $5.1 billion in revenue this year.

Twitter believes it can achieve that goal by expanding its audience to over 315 million mDAUs and launching new products. However, many of Twitter’s product launches — including its short-lived “Fleets,” organized “topics” for tweets, a new tipping feature, and subscriptions for top accounts — haven’t inspired much confidence in the company’s ability to hit those targets.

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Twitter already increased its headcount by more than 30% in 2021 to support those ambitious plans. Those expenses, along with its other recent investments, haven’t been fully recognized and will likely result in a “mid 20% increase in total expenses next year prior to hiring any more people or additional investments during 2022,” according to CFO Ned Segal.

Therefore, some investors are likely worried that Twitter will spend too much money next year while failing to launch any inspiring, revenue-boosting products. They’re also likely skeptical about Twitter’s rosy guidance for 2023, especially as its mDAU growth — especially in the U.S. — gradually decelerates.

Is Twitter’s stock worth buying?

Twitter’s stock trades at roughly 40 times forward earnings. That price-to-earnings ratio makes it more expensive than Facebook, which trades at just 20 times forward earnings, but it’s cheaper than Pinterest or Snap.

Twitter is still growing, but its valuations were likely inflated by the ambitious targets it set at its investor day in February. Snap was also recently punished for delivering a mixed quarter after declaring it could generate more than 50% revenue growth over the next few years.

Twitter could suffer a similar fate over the next few quarters if its aggressive spending plans fail to bear fruit. Therefore, I wouldn’t touch Twitter’s stock until it shows some clearer signs of being able to hit its ambitious long-term targets.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Leo Sun owns shares of Apple, Pinterest, and Snap Inc. The Motley Fool owns shares of and recommends Apple, Facebook, Pinterest, and Twitter. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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TWITTER

Elon Musk Says He’ll Pay $11 Billion in Taxes in 2021 But Twitter Wants ‘Proof’

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Elon Musk took to Twitter to clarify once and for all that he will be paying a whopping $11 billion as taxes this year.

If the number of times Elon Musk could count when someone has asked him to pay the full taxes, he would be a very rich..wait, never mind. The Tesla boss is rich beyond any private individual has been in history, reports said.

Musk has increasingly been facing criticism from many politicians and many others who insist he has not been paying taxes as compared to the profits his companies have been making. On Sunday, the SpaceX CEO took to Twitter to share that he will be paying a whopping $11 billion as taxes.

For those wondering, I will pay over $11 billion in taxes this year— Elon Musk (@elonmusk) December 20, 2021

But some of the questions did not stop. One person tweeted how they needed to see Musk’s tax returns while yet another asked how much percentage was that of his total income.

A few were, however scathing of the government who thought they will add that amount to their pockets rather than using it for some proper development.

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Wow that’s enough to give each person in the world almost $2 million but instead the government will just stick it in their pockets— greg (@greg16676935420) December 20, 2021

Why not $200 billion? Asking for a Senator— litquidity (@litcapital) December 20, 2021

Earlier this week, Democratic US Senator Elizabeth Warren has tweeted to say that Musk should pay taxes and stop “freeloading off everyone else” after Time magazine named him its “person of the year”.

In response, Musk shot four tweets in which he said that the senator reminded him of a friend’s angry mom who yelled at everybody. He tweeted, ““And if you opened your eyes for 2 seconds, you would realize I will pay more taxes than any American in history this year.” “Don’t spend it all at once … oh wait you did already.”

He added further, “You remind me of when I was a kid and my friend’s angry Mom would just randomly yell at everyone for no reason.”

Musk responded by saying that he “will pay more taxes than any American in history this year”. This Twitter exchange left netizens divided as even though many supported Warren and agreed that Musk should pay more taxes, others felt that he was already doing enough.

Musk’s Tesla is worth about $1 trillion. Over the last few weeks, he has sold nearly $14 billion worth of Tesla shares.

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The Tesla boss has been pushing for his colonize Mars agenda for years now, and has made it very clear in some occasions that he would rather spend the money on putting humanity on the red planet, than pay his taxes. “My plan,” the SpaceX founder tweeted about his fortune, “is to use the money to get humanity to Mars and preserve the light of consciousness.”

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TWITTER

Twitter Admits Policy ‘Errors’ After Far-Right Abuse Its New Rules of Posting Pictures

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Twitter’s new picture permission policy was aimed at combating online abuse, but US activists and researchers said Friday that far-right backers have employed it to protect themselves from scrutiny and to harass opponents.

Even the social network admitted the rollout of the rules, which say anyone can ask Twitter to take down images of themselves posted without their consent, was marred by malicious reports and its teams’ own errors.

It was just the kind of trouble anti-racism advocates worried was coming after the policy was announced this week.

Their concerns were quickly validated, with anti-extremism researcher Kristofer Goldsmith tweeting a screenshot of a far-right call-to-action circulating on Telegram: “Due to the new privacy policy at Twitter, things now unexpectedly work more in our favor.”

“Anyone with a Twitter account should be reporting doxxing posts from the following accounts,” the message said, with a list of dozens of Twitter handles.

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Gwen Snyder, an organizer and researcher in Philadelphia, said her account was blocked this week after a report to Twitter about a series of 2019 photos she said showed a local political candidate at a march organized by extreme-right group Proud Boys.

Rather than go through an appeal with Twitter she opted to delete the images and alert others to what was happening.

“Twitter moving to eliminate (my) work from their platform is incredibly dangerous and is going to enable and embolden fascists,” she told AFP.

In announcing the privacy policy on Tuesday, Twitter noted that “sharing personal media, such as images or videos, can potentially violate a person’s privacy, and may lead to emotional or physical harm.”

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But the rules don’t apply to “public figures or individuals when media and accompanying Tweets are shared in the public interest or add value to public discourse.”

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By Friday, Twitter noted the roll out had been rough: “We became aware of a significant amount of coordinated and malicious reports, and unfortunately, our enforcement teams made several errors.”

“We’ve corrected those errors and are undergoing an internal review to make certain that this policy is used as intended,” the firm added.

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Jack Dorsey Post Twitter Is Chasing His Crypto, Fintech Dream

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At a packed Miami conference in June, Jack Dorsey, mused in front of thousands of attendees about where his real passion lay: “If I weren’t at Square or Twitter, I’d be working on Bitcoin.”

On Monday, Dorsey made good on one part of that, announcing he would leave Twitter for the second time, handing the CEO position to a 10-year veteran at the firm. The 45-year-old entrepreneur, who is often described as an enigma with varied interests from meditation to yoga to fashion design, plans to pursue his passion which include focusing on running Square and doing more philanthropic work, according to a source familiar with his plan.

Well before the surprise news, Dorsey had laid the groundwork for his next chapter, seeding both companies with cryptocurrency-related projects.

Underlying Dorsey’s broader vision is the principle of “decentralisation,” or the idea that technology and finance should not be concentrated among a handful of gatekeepers, as it is now, but should, instead, be steered by the hands of the many, either people or entities.

The concept has played out at Square, which has built a division devoted to working on projects and awarding grants with the aim of growing Bitcoin’s popularity globally. Bitcoin price in India stood at Rs. 44.52 lakh as of 12:50pm IST on December 1.

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Dorsey has been a longtime proponent of Bitcoin, and the appeal is that the cryptocurrency will allow for private and secure transactions with the value of Bitcoin unrelated to any government.

The idea has also underpinned new projects at Twitter, where Dorsey tapped a top lieutenant – and now the company’s new CEO Parag Agrawal – to oversee a team that is attempting to construct a decentralised social media protocol, which will allow different social platforms to connect with one another, similar to the way email providers operate.

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The project called Bluesky will aim to allow users control over the types of content they see online, removing the “burden” on companies like Twitter to enforce a global policy to fight abuse or misleading information, Dorsey said in 2019 when he announced Bluesky.

Bitcoin has also figured prominently at both of his companies. Square became one of the first public companies to own Bitcoin assets on its balance sheet, having invested $220 million (roughly Rs. 1,650 crore) in the cryptocurrency.

In August, Square created a new business unit called TBD to focus on Bitcoin. The company is also planning to build a hardware wallet for Bitcoin, a Bitcoin mining system, as well as a decentralised Bitcoin exchange.

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Twitter allows users to tip their favourite content creators with Bitcoin and has been testing integrations with non-fungible tokens (NFTs), a type of digital asset that allows people to collect unique digital art.

Analysts see the transition as a positive signal for Square, the fintech platform he co-founded in 2009. Square’s core Cash App, after a bull run in its share in 2020, has experienced slower growth in the most recent quarter. It is also trying to digest the $29 billion (roughly Rs. 2,17,240 crore) acquisition of Buy Now Pay Later provider Afterpay, its largest acquisition ever.

But these ambitions will not pay off until years from now, analysts cautioned.

“The blockchain platform they’re trying to develop is great but also fraught with technical challenges and difficult to scale for consumers. I think he’ll focus more on Square and crypto will be part of that,” said Christopher Brendler, an analyst at DA Davidson.

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© Thomson Reuters 2021

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Interested in cryptocurrency? We discuss all things crypto with WazirX CEO Nischal Shetty and WeekendInvesting founder Alok Jain on Orbital, the Gadgets 360 podcast. Orbital is available on Apple Podcasts, Google Podcasts, Spotify, Amazon Music and wherever you get your podcasts.

Cryptocurrency is an unregulated digital currency, not a legal tender and subject to market risks. The information provided in the article is not intended to be and does not constitute financial advice, trading advice or any other advice or recommendation of any sort offered or endorsed by NDTV. NDTV shall not be responsible for any loss arising from any investment based on any perceived recommendation, forecast or any other information contained in the article.

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)

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