Twitter Inc (TWTR) is one of the most favored social networking services in the world. Founded by Jack Dorsey, Noah Glass, Biz Stone, and Evan Williams in 2006.
About the Company
Company Profile
Twitter is an American online news and social networking service on which users post and interact with messages known as “tweets”. Tweets were originally restricted to 140 characters, but on November 7, 2017, this limit was doubled to 280 for all languages except Chinese, Japanese, and Korean. Wikipedia
Founded on March 21, 2006, at San Francisco, CA. The founders are Jack Dorsey, Noah Glass, Biz Stone, and Evan Williams.
Twitter Extended Graph Analysis
A) TWITTER CASH FLOW
| Net cash flow provided by operating activites | Net cash used for investing activities | Net cash provided by (used for) financing activities | Capital expenditures | Free cash flows | |
| 2014 | 81,796,000 | -1,097,272,000 | 1,691,722,000 | -201,630,000 | -119,834,000 |
| 2015 | 383,066,000 | -902,421,000 | -62,998,000 | -347,280,000 | 36,786,000 |
| 2016 | 763,055,000 | -598,008,000 | -83,975,000 | -218,657,000 | 544,398,000 |
| 2017 | 831,209,000 | -112,932,000 | -78,373,000 | -160,742,000 | 670,467,000 |
| 2018 | 1,339,711,000 | -2,055,513,000 | 978,116,000 | -483,934,000 | 855,777,000 |
| TTM | 1,448,731,000 | -1,767,075,000 | 978,051,000 | -473,869,000 | 974,862,000 |
Facts
- Net cash flow provided by operating activities were $1.34 billion and $1.45 billion in 2018 and the trailing twelve months (TTM), respectively.
- Net cash used for investing activities was -$2.06 billion and -$1.77 billion in 2018 and the trailing twelve months respectively.
- The net cash provided by (used for) financing activities were $978 million and $978 million in 2018 and the trailing twelve months respectively.
- While the capital expenditures were -$484 million and -$474 million in 2018 and the trailing twelve months respectively.
- On the other hand, the free cash flows were $856 million and $975 million in 2018 and the trailing twelve months respectively.
Explanation
- The net cash flow had increased by 61 and 8 percent from 2017 to 2018 and the trailing twelve months due to the huge increase in net income at 1216 percent.
- Net cash used for investing activities increased by 1720 percent from 2017 to 2018 due to the increase in purchases of investment.
- There was a debt issued of $1.15 billion in 2018 which impacted the net cash provided by (used for) financing activities and shows a positive result.
- On the other hand, capital expenditures are an investment in properties, plant, and equipment.
- While free cash flows are increasing year-over-year and show a growth of 112 percent in the last five years.
Interpretation
Free cash flows exclude the non-cash expenses and include expenses from equipment and assets and changes in working capital. The company’s free cash flow was impressive as year-over-year it increases. Moreover, Twitter is liquid and its free cash flows represent 73 percent of the net income.
B) TWITTER BALANCE SHEET
| 2014 | 2015 | 2016 | 2017 | 2018 | |
| Total cash | 3,621,878,000 | 3,495,348,000 | 3,774,579,000 | 4,403,102,000 | 6,209,401,000 |
| Current Assets | 4,255,853,000 | 4,381,792,000 | 4,652,196,000 | 5,321,884,000 | 7,111,036,000 |
| Total assets | 5,583,082,000 | 6,442,439,000 | 6,870,365,000 | 7,412,477,000 | 10,162,572,000 |
| Current liabilities | 393,794,000 | 506,039,000 | 584,021,000 | 583,278,000 | 1,516,311,000 |
| Total liabilities | 1,956,679,000 | 2,074,392,000 | 2,265,430,000 | 2,365,259,000 | 3,356,978,000 |
| Equity | 3,646,403,000 | 4,368,047,000 | 4,604,935,000 | 5,047,218,000 | 6,805,594,000 |
| Retained earnings | -1,572,446,000 | -2,093,477,000 | -2,550,350,000 | -2,671,729,000 | -1,454,073,000 |
| Total debts | 1,376,020,000 | 1,455,095,000 | 1,538,967,000 | 1,627,460,000 | 2,628,250,000 |
| Working capital | 3,862,000,000 | 3,876,000,000 | 4,068,000,000 | 4,739,000,000 | 5,595,000,000 |
Facts:
- Total cash was $6.21 billion in 2018.
- The current assets were $7.12 billion in 2018.
- Total assets were $10.16 billion in 2018.
- Current liabilities were $1.52 billion in 2018.
- Total liabilities were $3.36 billion in 2018.
- Total equity was $6.8 billion in 2018.
- Retained earnings were -$1.45 billion in 2018.
- Total debts were $2.6 billion in 2018.
- Working capital was $5.6 billion in 2018.
Explanation
- Total cash increases year-over-year from 2015 to 2018 and has a growth of 42 percent in five years.
- Current assets increase year-over-year in the last five years and have a growth of 40 percent.
- Total assets increase year-over-year in the last five years and have a growth of 45 percent.
- Current liabilities increase year-over-year in the last five years at a rate of 74 percent.
- Total liabilities increase year-over-year in the last five years at a rate of 42 percent.
- Total equity increases year-over-year in the last five years at a rate of 46 percent due to additional paid-in capital.
- Retained earnings were negative in the last five years due to net income losses from 2014 to 2017. In 2018 and the trailing twelve months net income shows positive results and increase 109 and 10 percent from 2017 to 2018 and the trailing twelve months.
- Total debts increased 48 percent from 2014 to 2018.
- Working capital has a growth of 31 percent in five years and increasing year-over-year.
Interpretation
The balance sheet represents the company’s financial status at a certain period of time. Twitter has a strong balance sheet, it has sufficient funds and able to handle its liabilities. In other words, Twitter is liquid.
C) TWITTER FINANCIAL RATIOS
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | TTM | |
| Asset turnover (average) | 0.15 | 0.41 | 0.32 | 0.31 | 0.37 | 0.38 | 0.34 | 0.35 | 0.34 |
| Return on assets % | -22.77 | -10.23 | -30.75 | -12.91 | -8.67 | -6.86 | -1.51 | 13.72 | 14.29 |
| Financial leverage (average) | 0.00 | 0.00 | 1.14 | 1.54 | 1.47 | 1.49 | 1.47 | 1.49 | 1.57 |
| Return on equity % | 0.00 | 0.00 | -47.77 | -17.57 | -13.03 | -10.19 | -2.24 | 20.34 | 21.72 |
| Return on invested capital % | 0.00 | 0.00 | -42.82 | -13.79 | -7.59 | -6.19 | 0.17 | 15.48 | 15.92 |
| Interest coverage | 0.00 | 0.00 | 0.00 | 0.00 | -4.43 | -3.41 | 0.09 | 4.19 | 4.19 |
Facts:
- The asset turnover (average) was 0.34 ratio in the trailing twelve months.
- Return on assets was 14.29 percent in the trailing twelve months.
- Financial leverage (average) was 1.57 ratio in the trailing twelve months.
- Return on equity was 21.72 percent in the trailing twelve months.
- While return on invested capital was 15.92 percent in the trailing twelve months.
- The interest coverage was 4.19 ratio in the trailing twelve months.
Explanation
- Asset turnover ratio means that each dollar of assets generates an average of $0.34 in the trailing twelve months.
- Return on assets indicates that for every dollar that was invested in assets produced $0.137 in 2018.
- Financial leverage indicates that the liabilities are 157 percent of the stockholder’s equity.
- Return on equity indicates that every dollar of common shareholders equity earned $0.2172 return on their investment in 2018.
- Return on invested capital indicates that every dollar invested in capital produces a $0.1592 return in 2018.
- Interest coverage measures the company’s ability to make interest payments on its debt in time. Twitter is able to make 4.19 times more earnings than his current interest payments.
Interpretation
Twitter is liquid and was able to make an acceptable return on investments made.
D) INCOME AND MARKET
| 2014 | 2015 | 2016 | 2017 | 2018 | YTD | |
| Revenue | 1,403,002,000 | 2,218,032,000 | 2,529,619,000 | 2,443,299,000 | 3,042,359,000 | 3,164,378,000 |
| EBIT | -538,866,000 | -450,036,000 | -367,208,000 | 38,740,000 | 453,325,000 | 472,058,000 |
| Net Income | -577,820,000 | -521,031,000 | -456,873,000 | -108,063,000 | 1,205,596,000 | 1,335,403,000 |
| Market Capitalization | 23,042,000,000 | 16,062,000,000 | 11,653,000,000 | 17,834,000,000 | 21,965,000,000 | 30,676,000,000 |
| Intrinsic Value | 0 | 815,729,332 | 890,352,542 | 2,026,132,340 | 2,822,415,366 | 4,173,150,541 |
Facts:
- Revenue was $3.16 billion in the trailing twelve months.
- While the EBIT was $472 million in the trailing twelve months.
- And the net income was $1.34 billion in the trailing twelve months.
- The market capitalization was $30.68 billion in the trailing twelve months.
- While the intrinsic value was $4.17 billion in the trailing twelve months.
Explanation
- Revenue increases year-over-year and has a growth of 56 percent in five years.
- While EBIT shows negative in the first three years and has a growth of 214 percent in five years.
- Net income shows negative in the first 4 years however managed an increased in 2018 and YTD and has a growth of 143 percent in five years.
- Moreover, market capitalization was erratic in movement in the last five years and has a growth of 25 percent in five years.
- However, the intrinsic value is increasing year-over-year in the last four years and has a growth of 80 percent. The market capitalization might be overvalued compared to the intrinsic value.
Interpretation
In the last two years of its operation, the management was able to augment its earnings which shows a positive bottom line and was able to increase its cash and working capital as well. Twitter is profitable.
E) KEY EXECUTIVE COMPENSATION
| 2014 | 2015 | 2016 | 2017 | 2018 | |
| Key Executive Compensation | 7,855,088 | 440,006 | 9,904,051 | 15,207,588 | 39,067,621 |
| Jack Dorsey/ Chief Executive Officer | 0 | 68,506 | 56,551 | 0 | 1 |
| Ned Segal/ Chief Financial Officer | 0 | 0 | 0 | 14,299,528 | 4,963,054 |
| Michael Montano/ Engineering Lead | 0 | 0 | 0 | 0 | 17,984,246 |
| Vijava Gadde/ Chief Legal Officer and Secretary | 7,855,088 | 371,500 | 9,847,500 | 908,060 | 11,799,901 |
| Mathew Derella/ Customers Lead | 0 | 0 | 0 | 0 | 4,320,419 |
Detailed Distribution
| 2014 | 2015 | 2016 | 2017 | 2018 | |
| Key Executive Compensation | |||||
| Salary | 283,981 | 370,000 | 498,000 | 665,385 | 1,822,885 |
| Bonus | 300,000 | 609,210 | |||
| Annual Other Income | |||||
| Restricted Stock Award | 7,555,950 | 9,348,000 | 14,239,203 | 36,626,526 | |
| Securities Option | |||||
| LTIP Payout | |||||
| Non-Equity Compensation | |||||
| Other Compensation | 15,157 | 70,006 | 58,051 | 3,000 | 9,000 |
| Total | 7,855,088 | 440,006 | 9,904,051 | 15,207,588 | 39,067,621 |
| Jack Dorsey/Chief Executive Officer | |||||
| Salary | 1 | ||||
| Bonus | |||||
| Annual Other Income | |||||
| Restricted Stock Award | |||||
| Securities Option | |||||
| LTIP Payout | |||||
| Non-Equity Compensation | 68,506 | 56,551 | |||
| Other Compensation | 68,506 | 56,551 | 1 | ||
| Total | |||||
| Ned Segal/Chief Financial Officer | |||||
| Salary | 165,385 | 500,000 | |||
| Bonus | 300,000 | ||||
| Annual Other Income | |||||
| Restricted Stock Award | 13,832,643 | 4,460,054 | |||
| Securities Option | |||||
| LTIP Payout | |||||
| Non-Equity Compensation | |||||
| Other Compensation | 1,500 | 3,000 | |||
| Total | 14,299,528 | 4,963,054 | |||
| Michael Montano/ Engineering Lead | |||||
| Salary | 325,769 | ||||
| Bonus | 45,500 | ||||
| Annual Other Income | |||||
| Restricted Stock Award | 17,612,977 | ||||
| Securities Option | |||||
| LTIP Payout | |||||
| Non-Equity Compensation | |||||
| Other Compensation | |||||
| Total | 17,984,246 | ||||
| Vijaya Gadde/ Chief Legal Officer | |||||
| Salary | 283,981 | 370,000 | 498,000 | 500,000 | 498,077 |
| Bonus | |||||
| Annual Other Income | |||||
| Restricted Stock Award | 7,555,950 | 9,348,000 | 406,560 | 11,298,824 | |
| Securities Option | |||||
| LTIP Payout | |||||
| Non-Equity Compensation | |||||
| Other Compensation | 15,157 | 1,500 | 1,500 | 1,500 | 3,000 |
| Total | 7,855,088 | 371,500 | 9,847,500 | 908,060 | 11,799,901 |
| Matthew Derella/Customers Lead | |||||
| Salary | 499,038 | ||||
| Bonus | 563,710 | ||||
| Annual Other Income | |||||
| Restricted Stock Award | 3,254,671 | ||||
| Securities Option | |||||
| LTIP Payout | |||||
| Non-Equity Compensation | |||||
| Other Compensation | 3,000 | ||||
| Total | 4,320,419 | ||||
Facts
- Total key executive compensation was $39,067,621 in 2018.
- And the chief executive officer, Jack Dorsey compensation was $1 in 2018.
- While the chief financial officer, Ned Segal compensation was $4,963,054 in 2018.
- On the other hand, Engineering Lead, Michael Montano compensation was $17,984,246 in 2018.
- In addition, the Chief Legal Officer and Secretary, Vijava Gadde compensation was $11,799,901 in 2018.
- Customers Lead, Matthew Derella compensation was $4,320,419 in 2018.
Explanation
- The total key executive compensation represents 1.81 percent of the gross profit.
- Ned Segal, CFO total salary represent 10 percent of his total compensation.
- Michael Montano, Engg Lead total salary represents 2 percent of his total compensation.
- Vijava Gadde, CLO and Secretary total salary represent 4 percent of his total compensation.
- Matthew Derella, Customer Lead total salary represent 12 percent of his total compensation.
Interpretation
The total key executive compensation shows an increase of 110.53 percent from that of last year.
F) LOBBYING AND CONTRIBUTIONS
LOBBYING/CONTRIBUTIONS TO POLITICIANS
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
| $90,000.00 | $310,000.00 | $500,000.00 | $680,000.00 | $550,000.00 | $1,100,000.00 | $420,000.00 |
TOTAL CONTRIBUTIONS
| Cycle | Total | Democrats | Republicans | % to Dems | % to Repubs | Individuals | PACs | Soft (Indivs) | Soft (Orgs) |
| 2018 | $288,284.00 | $278,211.00 | $9,150.00 | 97.00% | 3.00% | $269,558.00 | $10,700.00 | $250.00 | $0.00 |
| 2016 | $858,021.00 | $589,276.00 | $263,945.00 | 69.00% | 31.00% | $840,021.00 | $15,500.00 | $2,250.00 | $0.00 |
| 2014 | $41,300.00 | $23,300.00 | $3,000.00 | 56.00% | 7.00% | $26,300.00 | $0.00 | $15,000.00 | $0.00 |
| 2012 | $35,529.00 | $34,279.00 | $250.00 | 97.00% | 1.00% | $34,529.00 | $0.00 | $0.00 | $0.00 |
| 2008 | $3,000.00 | $3,000.00 | $0.00 | 100.00% | 0.00% | $3,000.00 | $0.00 | $0.00 | $0.00 |
| $1,226,134.00 | $928,066.00 | $276,345.00 | 76.00% | 23.00% | $1,173,408.00 | $26,200.00 | $17,500.00 | $0.00 |
Itemized Lobbying Expenses for Twitter, 2019
| Firms Hired | Total Reported by Filer | Reported Contract Expenses (Included in Total Reported by Filer) |
| $420,000.00 | ||
| Mehlman, Castagnetti, et al | $60,000.00 | |
| Integrated Solutions Group | $30,000.00 | |
| Joseph Group | $30,000.00 | |
| Total | $120,000.00 |
A lobbyist representing Twitter, 2019
| Lobbying Firm Hired | Amount | Subsidiary (Lobbied For) | Lobbyist |
| Integrated Solutions Group | $30,000.00 | Boyd, Moses | |
| O’Hanlon, G John | |||
| Joseph Group | $30,000.00 | Joseph, Kevin | |
| Mehlman, Gastanetti, et al | $60,000.00 | Aronson, Lauren | |
| Castagnetti, David | |||
| Collins, Mike | |||
| Distefano, Nichole | |||
| Eastman, Sage | |||
| Haro, Steven | |||
| Hingson, Dean Constantine | |||
| Mehlman, Bruce P | |||
| Pickering, Elise Finley | |||
| Robinson, Michael C | |||
| Rosen, Dean | |||
| Thomas, David R | |||
| Tolar, Helen | |||
| Wooters, Charles | |||
| $420,000.00 | Culbertson, Lauren | ||
| Kane, Kevin | |||
| Roman, Lisa |
Facts:
- Total lobbying expenses in 2013 was $90,000.00.
- Total lobbying expenses in 2014 was $310,000.00.
- The lobbying expenses in 2015 was $500,000.00.
- While lobbying expenses in 2016 was $680,000.00.
- Lobbying expenses in 2017 was $550,000.00.
- On the other hand, in 2018 the total lobbying expenses was $1,100,000,00.
- And the total lobbying expenses in 2019 was $420,000.00.
Explanation
A special interest’s lobbying activity may go up or down over time, depending on how much attention the federal government is giving their issues. Particularly active clients often retain multiple lobbying firms, each with a team of lobbyists, to press their case for them.
Total Lobbying Expenditures: $420,000
Source: OpenSecrets.org
Center for Responsive Politics
Interpretation
Twitter is incurring a lobbying and contributions expenses to politicians every year since 2013 to the present time. These expenses are not reflected in the financial statements of the company although they were actually incurred.
G) FINANCIAL STRENGTH
DATA
| Working capital | Total assets | Sales | EBIT | Market value of equity | Book value of total liabilities | Retained earnings |
| 5,595,000,000 | 10,162,572,000 | 3,164,378,000 | 472,058,000 | 28,585,400,000 | 3,356,978,000 | -1,454,073,000 |
FORMULA
Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
| Calculation | Ratio | Z-Score | Result |
| A – Working Capital / Total Assets | 0.55 | 1.2 | 0.66 |
| B – Retained Earnings / Total Assets | -0.14 | 1.4 | -0.196 |
| C – EBIT / Total Assets | 0.05 | 3.3 | 0.165 |
| D – Market Value of Equity / Book Value of Total Liabilities | 8.52 | 0.6 | 5.112 |
| E – Sales / Total Assets | 0.31 | 1.0 | 0.31 |
| Z-Score | 6.051 |
The Z-Score formula is computed as follows: Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
Facts
- A – 0.55 * 1.2 = 0.66
- B – -0.14 * 1.4 = -0.196
- C – 0.05 * 3.3 = 0.165
- D – 8.52 * 0.6 = 5.112
- E – 0.31 * 1.0 = 0.31
- Z-Score = 6.051
Explanation
- The Z-Score by Dr. Edward Altman is a significant measure in determining the financial strength of the company because it relies on different weighted financial liquidity and profitability metrics to come up with the overall score. It indicates the company’s probability of bankruptcy.
Interpretation
The Z-Score of Twitter was 6.051, it is then compared to the grading scale. According to Altman, an overall score of 3 and above will not declare bankruptcy. Twitter is not close to solvency. The company is in good financial health.
CONCLUSION
Twitter company’s balance sheet is in good health and financially stable. The company is liquid and profitable. The management was able to augment its earnings every year which produced good financial results.
The company’s stock price was erratic in movement so as the market capitalization in the last ten years. The book value is increasing every year in the past six years. The shares of stocks were increasing as well. I recommend the stock of Twitter Inc (TWTR) a Buy.
CITATION
https://www.morningstar.com/stocks/XNYS/TWTR/quote.html
https://www.opensecrets.org/orgs/lobby.php?id=D000067113
Researched and written by Criselda
Twitter: criseldarome
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