The Exchange

SunTrust’s Bob Peck Has Been Crunching Twitter’s Numbers Even Before the IPO

The Exchange

This morning, SunTrust’s Bob Peck is out with a report on Twitter’s amended S-1, posted last night, which includes 3Q financials and user metrics.

Here are some of the highlights:

Revenues were better than Peck had previously expected…

Total revenues were $168m in 3Q vs. our $150m estimate, growing 105% y/y even with last quarter while Advertising revenues accelerated to $153m, up 124% y/y
vs. 113% last quarter.

Advertising revenue is growing even as monthly active user growth is slowing…

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Peck is bullish on EBITDA margins even while they came in Quarter over Quarter…

Given the new set of products being launched; enhanced targeting, TV integration, self service platforms, scheduled Tweets, Lead Cards etc, we believe the spending on growth is prudent – particularly while showing y/y margin expansion. We expect 4Q will be seasonally strong as in years past (both in terms of revenues and margins), and see no reason why the long term margins can’t expand above the 30% range and possibly approach Facebook’s ~50% levels and we model for stable improvements over the coming years on that path. Capex was down sequentially to $20m from $27m, and the forecast provided by the company calls for $215-235m for 2013 vs. $225-275m in the previous S-1. The demands on Twitter’s network remain robust and while we applaud the improved spending efficiency, we continue to model
healthy levels of capex going forward to grow the business and widen competitive moats.

International accounts for 77% of users…

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…and average revenue per international user is growing quickly but from a very small base…

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SunTrust raises its estimates slightly from its October 7 report and maintains its $50 price target…

We are tweaking our estimates, raising 2013 and 2014 revenues to $625 and $1,185 from $606 and $1,166 respectively. Our margin estimates dip slightly to
10% and 14% from 10.2% and 14.1%. We note the higher monetization and revenue growth rates along with continued investments and slightly lower margins and maintain our 2014 year end price target of $50 based on our central tendency of value employing forward multiples of 16x revenues and 80x EBITDA on our 2015 estimates along with other proprietary analysis.

You can read the full SunTrust report here: Twitter 3Q Ad Revenues Accelerate - “Just Setting Up My IPO…” @dickc

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