The following lines analyze Twitter’s financial statements. Information that is on public records https://investor.twitterinc.com/financial-information/default.aspx. First, we look into Twitter’s business revenues and explain its costs and expenses to understand its profitability and ability to predict future flows. Later, we analyze Twitter’s financial position and business structure. Finally, we connect the previous information with some indicators to focus mainly our conclusion on the financial company’s strengths, weaknesses, threats, and opportunities.
Revenue doubled from 2017 (US$ 2,443 million) to 2021 (US$5,077 million). 89% of Twitter revenue is generated by advertising services and 11% by data licensing.
|
Jun-22 |
2021 | 2020 | 2019 | 2018 | 2017 | |
| REVENUE | 2.378 | 5.077 | 3.716 | 3.459 | 3.042 |
2.443 |
Cost of revenue includes infrastructure costs, revenue share expenses, amortization of acquired intangible assets, amortization of capitalized labor costs for internally developed software, allocated facilities costs, as well as traffic acquisition costs (TAC), and personnel-related costs, including salaries, benefits, and stock-based compensation, for operations teams.
Tech companies require no raw materials and little labor but are intensive in infrastructure. The cost of revenue was around 35% of each dollar sold by Twitter. The cost of revenues increased in the first semester of 2022 for infrastructure and personnel-related costs. The company could anticipate increased operations and better revenues in the following years.
| Jun-22 | 2021 | 2020 | 2019 | 2018 | 2017 | |
| REVENUE | 100% | 100% | 100% | 100% | 100% | 100% |
| Cost of revenue | -44% | -35% | -37% | -33% | -32% | -35% |
| GROSS PROFIT | 56% | 65% | 63% | 67% | 68% |
65% |
Twitter increased its operating expenses from 59% to 76% of total revenues. Most operating expenses consist primarily of personnel-related costs, including salaries, benefits, and stock-based compensation. For example, the research and development expense involves employees developing products and services. Sales and marketing expenses include sales support, business development and media, marketing, corporate communications, and customer service functions. While general and administrative include expenses for executive, finance, legal, information technology, human resources, and other administrative employees.
In addition, research and development expenses include the amortization of acquired intangible assets, allocated facilities costs, and other supporting overhead expenses. Marketing and sales-related fees include advertising costs, market research, trade shows, branding, marketing, public relations costs, amortization of acquired intangible assets, allocated facilities costs, and other supporting overhead costs. Finally, General and administrative expenses include fees for professional services, including consulting, third-party legal and accounting services and facilities costs, and other supporting overhead expenses that are not allocated to other departments.
| Jun-22 | 2021 | 2020 | 2019 | 2018 | 2017 | |
| OPERATING EXPENSES | -76% | -59% | -63% | -57% | -53% | -63% |
| Research and development | -35% | -25% | -23% | -20% | -18% | -22% |
| Sales and marketing | -26% | -23% | -24% | -26% | -25% | -29% |
| General and administrative | -15% | -12% | -15% | -10% | -10% | -12% |
| Litigation settlement, net | 0% | -15% | 0% | 0% | 0% | 0% |
| OPERATING INCOME (LOSS) | -20% | -10% | 1% | 11% | 15% | 2% |
To June 2022, Twitter had operating losses of US$ 472 million. At the end of 2021, Twitter encountered losses of US$493 million because of a litigation settlement. In September 2021, the company entered into a binding agreement to settle a shareholder class action lawsuit that was offset by collecting the insurance recovery. The total net amount of the litigation settlement was US$766 million.
Twitter had an operating profit before taxes in June 2022 due to an extra gain on selling a group asset for US$970.5 million. On January 1, 2022, the company completed the sale of certain assets that comprised its MoPub business to AppLovin Corporation for a total consideration of $1.05 billion in cash. The assets sold, classified as assets held for sale on the consolidated balance sheets as of December 31, 2021, consisted only of goodwill. No liabilities were transferred in the transaction. As a result, the company recorded a pre-tax gain of $970.5 million on the sale of its MoPub asset group in the consolidated statements of operations in the six months that ended June 30, 2022.
| Jun-22 | 2021 | 2020 | 2019 | 2018 | 2017 | |
| FINANCIAL INCOME | 1% | 1% | 2% | 5% | 4% | 2% |
| FINANCIAL EXPENSES | -2% | -1% | -4% | -4% | -4% | -4% |
| OTHER NON-OPERATING INCOME/(EXPENSES) | 41% | 2% | 0% | 0% | 0% | -3% |
| Other net finance income/(expenses) | 0% | 2% | 0% | 0% | 0% | -3% |
| Gain (loss) on sale of asset group | 41% | 0% | 0% | 0% | 0% | 0% |
| PROFIT (LOSS) BEFORE TAXES | 21% | -8% | -1% | 11% | 14% | -4% |
The company has a different jurisdictional mix of income (loss) before taxes, making it difficult to assess the effective tax settlements that impact the net profit positively or negatively in other years. For example, in 2018 and 2019, tax credits represented 26% and 31% of revenue, while in 2020, the company had to recognize tax payments of 29% of revenue.
| Jun-22 | 2021 | 2020 | 2019 | 2018 | 2017 | |
| CORPORATE TAXES | -10% | 4% | -29% | 31% | 26% | -1% |
| NET PROFIT (LOSS) | 10% | -4% | -31% | 42% | 40% | -4% |
The rise of business also is seen in Twitter’s financial position. Twitter mainly invested more than US$4 billion in non-current assets to improve infrastructure. In property and equipment, Twitter invested in computer hardware, networking and office equipment, computer software, furniture and fixtures, and leasehold improvements. In addition, the company uses operating leases for office space and data center facilities. Twitter holds an excellent cash and cash equivalent position, accounting for US$6.1 billion to June 2022. Total assets increased by 83% from 2017 to June 2022.
Twitter used a mix of equity and different type of debt to finance its growth. As a result, the company has increased its leverage using convertible notes, senior notes, and operating leases. In 2017, the company had a financial debt ratio (Total financial debts/Total equity and liability) of 24% that rose to 49% at the end of June 2022.
| Jun-22 | 2021 | 2020 | 2019 | 2018 | 2017 | |
| NON-CURRENT ASSETS | 6.306 | 6.141 | 4.742 | 5.083 | 3.052 | 2.091 |
| CURRENT ASSETS | 7.274 | 7.918 | 8.637 | 7.620 | 7.111 | 5.322 |
| TOTAL ASSETS | 13.579 | 14.060 | 13.379 | 12.703 | 10.163 | 7.412 |
| TOTAL EQUITY | 5.932 | 7.307 | 7.970 | 8.704 | 6.806 | 5.047 |
| NON-CURRENT LIABILITIES | 6.630 | 5.408 | 3.456 | 3.167 | 1.841 | 1.782 |
| CURRENT LIABILITIES | 1.017 | 1.344 | 1.953 | 832 | 1.516 | 583 |
| TOTAL LIABILITIES | 7.647 | 6.752 | 5.409 | 3.999 | 3.357 | 2.365 |
| TOTAL EQUITY AND LIABILITIES | 13.579 | 14.060 | 13.379 | 12.703 | 10.163 | 7.412 |
CONCLUSIONS
Twitter had significant past operating losses that affected its profitability. There is a certain inability to maintain profitability and accurately predict fluctuations in the future. For example, Twitter is subject to litigations or taxes settlements schemes that have repercussions in its consolidated statement of operations. What’s more, there are some macroeconomic events as inflation and rising interest rates or supply chain constraints, and labor shortages, that can affect consumer confidence and cause advertisers in a variety of industries to be cautious in their spending and to either pause or slow their marketing campaigns impacting in the Twitter revenues. Finally, some uncertainties are caused by events with significant macroeconomic impacts, including, but not limited to, the COVID-19 pandemic, the Russian invasion of Ukraine, and actions taken to counter inflation.
From a financial point of view, Twitter has increased costs and expenses, which impacted its profitability and deteriorated its economic structure. Its leverage ratio went from 32% in 2017 to 56% in June 2022. There is a substantial decrease in equity amounting to US$2.8 billion from 2019 to June 2022. However, the company is still strong in cash generation and cash position.
Strengths
- Cash position.
- Highly Influential.
- Loyal Customer Base.
- Strong Market Share.
- Popular for News and Marketing.
Weaknesses
- Increase in costs and expenses.
- The deterioration of the financial structure leverage ratio went from 32% in 2017 to 56% in June 2022.
- Decrease in equity.
- Times interest earned ratio.
Opportunities (only brainstorming)
- Online store.
- Feature enhancement.
- Offer remote working solutions.
- Enter into music or video streaming services.
- Focus on Mobile-friendly ads.
Threats
- The loss of advertising revenue.
- Competition for people to use the platform and for content and data partners.
- Advertising competition spend.
- Actual or perceived security breaches, incidents, errors, vulnerabilities, or defects in the company’s software and third-party products.
- Catastrophic events and interruptions by man-made problems.
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