Meet The Latest Media Mogul

Warren Buffet owns 63 newspapers…

…Jeff Bezos owns the Washington Post..

And now Elon Musk owns Twitter (TWTR). 

Sure it’s only a 9.2% stake, but it includes a board seat as well. 

Interest in the stock has waned over the last several months in favor of other internet content stocks that have been making headlines.

Yet, we suspect that the recent run is going to put a lot of renewed interest in the company especially since we saw a surge in searches from financial pros over the last two days.

With Musk now part of Twitter (TWTR), does it make for a good investment?

We take a deep dive and give you our no B.S. opinion. 

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Twitter Business

Founded in 2016 by tech icons Jack Dorsey, Biz Stone, Even Williams, and Noah Glass—the Twitter platform allows people to have conversations and distribute content in real-time. 

The Twitter platform can be accessed via the web or mobile app. And it has over 215 million active users. 

The company primarily makes money from advertising. 

In Q4 2021, TWTR reached $1.57B in revenue, with ad revenue consisting of $1.41B. The other source of revenue for the firm comes in the form of data licensing. 

For the full year of 2021, TWTR made $4.5B in revenues from its advertising services business, and $571M from data licensing. 

Now, one of the key metrics for social media apps like Twitter—is daily active monthly user count. 

Why?

Because if more users join the platform, it’s likely going to add up to more revenue for the firm. 

And as you can see from the chart, the user growth has been rising steadily over the last three years. 

TWTR is the unofficial home of NFTs and Web3 projects. In fact, Twitter Spaces and Twitter Threads have become the go-to place for many of your NFT needs. 

After Facebook (FB) cut out a lot of content from their platform, pushing back on creators, users flocked over to Twitter.

Financials

For a while it was looking like Twitter’s best years were behind them. However, we’ve seen a resurgence in growth. 

TWTR saw its revenues increase by 37% year-over-year in 2021. 

That’s the largest improvement the firm has seen since 2015, when it went from $1.4B in revenues to $2.2B in revenues. 

Despite the substantial growth the company has seen over the last four years, it hasn’t really impacted the company’s gross margin. In 2016, the firm’s revenues were $2.5B and its gross margin was 63%, in 2021, revenues hit $5B and the gross margin was 64.6%

And while TWTR isn’t profitable yet, it seems to be getting closer. 

Believe it or not, time is on its side. You see, TWTR has a current ratio of 5.89. In other words, its assets are 5.89 times greater than its short-term liabilities. 

Furthermore, TWTR has a debt-to-equity ratio of .73. That means for $0.73 of debt, TWTR has $1 in equity. 

Valuation

If you are looking for a value play then you’ll probably want to skip Twitter. 

Its P/E ratio is above the S&P 500 average, but its price to sales ratio is in line with some of its competitors. For example, TWTR’s price to sales ratio of 7.85 is not that far off from Pinterest (PINS), which is at 6.80. 

Although the return on equity in TWTR is negative, the firm operates a strong gross profit margin of 64.6%. 

Typically, when a company isn’t profitable yet, investors will examine its growth to gain clues on how close it is to profitability. 

And this is where TWTR excels. The firm’s year-over-year revenue growth was up 36%, and its forward revenue growth stands at 25%, well above the sector median of 9% and many of the peers listed above.

Our Opinion – 7/10

TWTR has a new lease on life thanks to its ability to attract NFT and Web3 creators onto its platform. But more specifically, the Elon Musk factor. 

And while the company continues to grow impressively, it has yet to turn a profit. We believe that could change with Musk on board. And would be likely buyers on pullbacks. 

Betting against Musk has been a losing proposition over the years, and we’re not about to start now.