Twitter Continues Near 52-Week Low

The simple explanation of why Twitter trades at $37 in a 52-week range of $56 and $33 is that investors do not believe advertisers have been drawn to its platform in large enough numbers. However, there is an alternative view that Twitter spends too much money. First-quarter revenue rose 74% to $436 million. Twitter management likes to use a profit measure different from GAAP income, so:

Q1 adjusted EBITDA of $104 million, above the previously forecast range of $89 million to $94 million, representing an adjusted EBITDA margin of 24%.

Investors were disappointed that direct response marketers did not use the social network in greater numbers. But its ad revenue is already greater than that of AOL Inc. (NYSE: AOL).

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By another critical measure, the company is still growing rapidly:

Monthly Active Users — Average Monthly Active Users (MAUs) were 302 million for the first quarter, up 18% year-over-year and compared to 288 million in the previous quarter. Average Mobile MAUs represented approximately 80% of total MAUs.

Investor anxiety was primarily because of Twitter management forecasts:

Twitter’s outlook for the second quarter of 2015 is as follows:

• Revenue is projected to be in the range of $470 million to $485 million.
• Adjusted EBITDA is projected to be in the range of $97 million to $102 million.
• Stock-based compensation expense is projected to be in the range of $190 million to $200 million, excluding the impact of equity awards that may be granted in connection with potential future acquisitions.

A look at Twitter’s 10K shows how it spends money. The company has 3,799 employees. Its general and administration expenses ballooned to $189 million last year. While it makes sense for sale costs and cost of revenue to rise, it appears Twitter has way too many other people:

General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for our executive, finance, legal, information technology, human resources and other administrative employees. In addition, general and administrative expenses include fees and costs for professional services, including consulting, third-party legal and accounting services and facilities and other supporting overhead costs that are not allocated to other departments.

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While there may be a reason for this heavy cost, Twitter has done a poor job explaining it.

No wonder the stock is under siege, given the revenue problems without cost control to mitigate them.