Hey guys, it's sasha today, i'm going to talk about twitter stock. It's a company that i think has really very exciting long-term prospects, but the big question is whether twitter is a good stock to buy right now. That is the question i'm going to try to answer in this video and in this video i will share a bunch of insights, some analysis and i'm also going to show you some interesting things that i've picked up. Uh i'll share some of the good and some of the bad things that i'm seeing in the numbers uh when i'm looking at twitter i'll then show you my dcf model and tell you what my target share price for twitter is.

I shared this data with my patreons this morning before the market's open. So if you want to get access to my target prices to the discussion, you can join us in the discord by signing up through the patreon, i'm going to put a link up here and in the description below now. If you want to see the full model, including the analysis and the assumptions being used, that is only available to team members, so make sure you select that option. If you want to see all the details all right.

First, let's talk about some of the twitter's core fundamentals. One of the most important metrics that twitter uses to measure performance is the m down the monetized daily active users. This is basically the number of people that use twitter every day that twitter can earn money from, and the latest figure for q3 2021, for that is, 211 million. 37 million of them are from the us, and 174 million are from other countries, and while these numbers are really quite impressive, facebook has 1.9 billion daily active users, that's about nine times as many and facebook will be.

The platform that i will compare twitter to at some point in this video because they share a lot of similarities in their business models in the way that they operate in the way that users engage with them and a lot of twitter stats. Look remarkably, like facebook's numbers did about 10 years ago. More on that in just a second now, twitter makes revenue in two different ways. At the moment they have their advertising revenue, which is the ads that you see when you scroll through the platform, and then you also have this other bundle of everything else called data, licensing and other, and naturally enough twitter earns a lot more money from us users Than it does from international users, much like every other advertising platform out there, us users make up only 18 of twitter's total user base, but they earn 57 percent of the total revenue.

Advertisers want to market products to people living in the us. It's kind of what we expect and if you do a bit of math from the numbers that twitter publishes, you can see that the revenue per us active user is about 17.50 per quarter in the most recent quarter. The revenue proactive user for the international market is only 2.80 in comparison, so the difference is pretty vast, and the interesting bit here is that facebook is making a heck of a lot more money right now from their users, 300 percent, more per us user and 200. More per international user, so there's definitely room to grow and twitter is very early on with learning to monetize.

Their platform. They've only recently started testing a bunch of new methods like tipping communities, paid spaces and twitter blue. That is a paid subscription service, and a lot of this testing is still really really early, we're talking like a few months. A lot of these features are not even available in countries like the uk, where i'm based, but recently twitter, has also had a growth issue that is important to highlight us.

Daily. Active users have increased from 26 million at the beginning of 2017 to 37 million today. So that increase sounds kind of alright, but if you look at the numbers carefully, you can see that almost all of that increase came during the onset of the pandemic in q1 and q2 of 2020. people wanted to access.

The latest information know what's going on know. You know what the government is doing, what people's opinions on this are people were forced to sit at home, wanted to communicate more online. All of that happened, so there is definitely a slight concern that twitter only grew us users by about 20 percent in the three years from q1 2017 to the beginning of q1, 2020. That's only about six percent a year and then in q3 2020.

After those two quarters, twitter had about 36 million daily active users and that number hasn't really gone up in the last 18 months. Now the international segment for twitter is growing very nicely, though. It's been growing about 18 per year over the last four to five years and that growth has been considerably more steady. The problem with international users is that twitter hasn't made much progress with monetizing them.

You can see that the average revenue per international user at the end of 2021 is not all that different to what it was in 2017.. The thing to remember with social media platforms, though, is that growth in user numbers and the revenue very early on in the life cycle of that company can often come in jumps as new tech is developed, focus shifts for the platform and new products are launched. So this lack of growth doesn't necessarily indicate some kind of pattern or say that twitter cannot grow from here on out and that they won't grow. I definitely don't think that is the case.

The numbers for twitter become even more interesting when you compare it to facebook from 10 years ago now here i have aligned 2021 for twitter with 2012 for facebook. You can see that the revenue numbers over these periods for the two companies are almost identical. I would have looked at facebook even further back, but unfortunately they don't have much data, because the company only went public in 2012, because i would have probably preferred to look at a time when facebook had the same roughly number of users. Anyway.

Facebook was making the same amount of revenue from two and a half times as many active users, so in some ways that is encouraging, because twitter is monetizing their users right now, better than facebook did when they were earning the same amount. The downside is that attracting users is generally a much harder task than ramping up rad revenue on the users you already have so in that sense, twitter has quite a lot of work ahead, but look at the costs. Twitter is consistently running at much higher costs than facebook did back. Then, that's partly to be expected.

We've had silicon valley ramp up with new companies, and the competition for talent is getting a lot heavier. The cost of getting those people is increasing and the cost of well everything else in the last 10 years has also gone up a fair bit. So you kind of expect, i guess the cost to be rising as a proportion now twitter's general costs are actually very similar to facebook's they're, only about 15 percent higher what facebook was spending as a proportion of their revenue 10 years ago. But the cost of revenue is 60 higher and their r d and marketing spend is running at double.

The really interesting thing to note is that facebook's costs haven't come down all that much since 2012.. Look here on the right. I have the q3 2021 numbers for facebook and their total costs are a bit lower as a percentage of their revenue, but not that much lower, given how much they've grown. The only cost that really has come down in any meaningful way is the cost of revenue.

So that is both a good and a bad thing when you're looking at twitter's valuation twitter's a platform or nothing offers something very different to facebook. But over time i don't see why they can't converge to a degree in terms of the sort of engagement they can get and the sort of revenue they can earn. If anything, because twitter is the platform for current events and news, you might expect them to maybe get more engagement if the two platforms were in the same place in terms of adoption and growth. But if you look at the history of facebook's costs, it doesn't bode well for twitter, because facebook is showing that, as the business has scaled massively, the benefits of that scaling haven't led to costs dropping as a percentage of revenue so with twitter spending, literally all of Their revenue at the moment and costs that isn't a great sign, but you could also argue that twitter has space from the cost that they're currently spending to drop more towards where facebook is maybe, as they are scaling, because facebook is showing that you can run.

That kind of size business at that sort of cost base, because remember these numbers are on far fewer users for twitter than facebook had even back in 2012., so economies of scale should in theory let twitter reduce the cost, at least towards the direction of what facebook Is running at today, so let's look at the output tab in the model. I'm not going to go through all of the assumptions here, because that is going to take quite a while. If you do want full access remember to the models, you can sign up to be a team member on patreon in the description. But here is the dcf model output.

I am projecting fairly reasonable numbers, but my ebitda grows from 915 million dollars in 2022 to 6.9 billion in 2027, which sounds ridiculous, but that is through a combination of a few different things. Growth here is not linear growth in revenue, because we have both the daily active users growing and the revenue per user growing at the same time, and those two things multiply so that creates a sort of nonlinear effect, but then i'm also baking in some reduction. Not a lot, but some reduction in the costs tending downwards because of the economies of scale and those together mean that the profit of the company is growing disproportionately compared to the growth in revenue, i'm also using some fairly basic assumptions. I have set some a long-term growth rates beyond my five-year horizon to be four percent and the ebitda multiple to be 17.

now twitter's. Profit here is growing a lot more than what these numbers are, maybe suggesting. So you could think that maybe it's conservative, but i'm also assuming that the non-linear element of growth has its limits and the rate of that non-linear growth is going to subside over time daily. Active users and revenue per user can't just keep growing at 15 and 20 per year, each forever anyway, i've added the one billion dollars from the sale of mo pub.

That has just happened to the cash figure uh, and here is my target share price. I have 41 using the perpetuity approach and 83 dollars using the ebitda approach and i'll probably go somewhere close to halfway, leaning slightly to the ebitda multiple in five years, because the cash flow will be looking a lot healthier than it does now. So i've set my tiger price at 67. Just remember that this is just my guess.

This is just the opinion of a random guy on youtube. I do not have a crystal ball. I might have made a mistake in this model. I might be completely wrong on.

What's going to happen, in fact, that's highly likely so make sure you do your own research make sure you do your own homework and your own analysis before making any financial decisions. Now that does give me a big upside of 80 to 85 over the current share price of 37, as i'm recording this video. But the odd thing is that, despite that sort of being a good amount, that isn't enough for me, gross stocks in general have been completely decimated in the last two to three months by inflation and interest rate fees. And i have other stocks that where i see a much bigger upside, however ridiculous that might have sounded a few months ago.

In some cases, those much bigger upsides come with far less risk, or at least far less volatility in my expectations and a faster expectation on that upside materializing. So, as a result, i would rate twitter a buy because there is a significant upside there, but i am personally not adding it to my own portfolio at the moment. If you found this video useful, please don't forget to smash the like button for the youtube algorithm. Thank you so much for watching.

I really really appreciate it and, as always i'll see you guys later, you.