Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Can Twitter (TWTR) make money with a new CEO?

Twitter (TWTR) is entering a new era with a controversial new CEO, Parag Agrawal. Agrawal, Twitter’s former Chief Technology Officer (CTO), is already generating controversy.

For example, in 2020 Agrawal told the Deep Tech podcast that “our role is not to be bound by the First Amendment,” The National Review observes. Predictably, many Americans are angry because of that statement.

Interestingly, I think Agrawal’s argument is constitutional. To explain, the First amendment states: “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”

To elaborate, lawyers could argue the First Amendment only covers Congress and the Federal government. Therefore, the First Amendment prevents the government, not private entities, from restricting free speech.

Twitter vs. Free Speech

Hence, Agrawal can claim the First Amendment does not cover private companies such as Twitter Inc. (NYSE: TWTR). However, Agrawal’s statement is a public relations nightmare for Twitter.

Twitter compounded the nightmare by removing the @NancyTracker and @TrackerTrial feeds, ReclaimtheNet notes. The NancyTracker reports US Speaker of the House Nancy Pelosi’s (D-California) stock trades. TrackerTrial follows the trial of Jeffrey Epstein associate Ghislaine Maxwell.

The removals are controversial because you can view both accounts as legitimate news feeds. Cynics will claim that Twitter is protecting a powerful politician Pelosi by trying to hide her stock trading activities.

In addition, some cynics will allege Twitter is protecting the powerful people caught up in the Jeffrey Epstein sex scandal. Names mentioned in that scandal include Bill Gates, former Presidents Bill Clinton (D-Arkansas) and Donald J. Trump (R-Florida), and Prince Andrew.

Poor Leadership and Terrible Management at Twitter

I predict Twitter will suffer and could have to restore those accounts. Furthermore, I predict activist investors will try to remove Agrawal because of the free speech issues.

Strangely, I do not think Agrawal’s ascension changes much at Twitter (TWTR). Former CEO Jack Dorsey was a figurehead with little interest in running the company. I think Agrawal’s elevation only formalizes a long-standing arrangement in which the CTO ran the company.

Another possibility is that Dorsey is setting Agrawal to take the blame when they attack Twitter for censorship. Either way, both scenarios show poor leadership and terrible management at Twitter.

Consequently, cynical investors will wonder what else is wrong at Twitter (TWTR). For instance, some people will ask if they are trying to hide problems with Twitter’s technology, security, or finances besides the free speech shenanigans.

I have to wonder how a person who cannot grasp something as fundamental as the importance of free speech can serve as an effective CEO? I also wonder if Agrawal is in charge, or just a front for Dorsey? Hence, Dorsey could still be in charge. Such a leadership arrangement will be terrible and ineffective.

What Value Does Twitter Have?

I think Twitter (TWTR) still offers some value despite the controversy and management chaos.

Notably, Twitter had 211 monetizable daily active users (Mdau) worldwide in the third quarter of 2021, Statista estimates. Twitter’s Mdau grew from 206 million in the second quarter of 2021 and 187 million in the third quarter of 2020. Thus, Twitter has a growing platform.

However, Twitter is still a minor player in the world of global social media. For example, Statista estimates Twitter had only 463 million users in October 2021. In contrast, the largest social media platform Facebook (FB) had 2.895 billion users in October 2021.

On the other hand, Twitter has a powerful position in two of the world’s richest and most powerful countries, the United States and Japan. Statista estimates Twitter had 77.75 million users in the USA and 58.2 million users in Japan in October 2021.

The United States had the world’s largest Gross Domestic Product (GDP) worth $20.807 trillion and Japan had the world’s third largest GDP of $4.91 trillion in February 2021, ResearchFDI estimates. Thus, Twitter has an influential social media platform in two of the world’s biggest markets.

Notably, Twitter has enormous influence over America’s media and political leadership. For example, former President Donald J. Trump (R-Florida) is fighting hard to get back on Twitter.

Is Twitter Making Money?

Despite its value, Twitter (TWTR) is losing money. For example, Twitter reported a quarterly operating loss of -$742.55 million on 30 September 2021.

In comparison, Twitter reported a quarterly operating income of $30.25 million on 30 June 2021. The quarterly operating income fell from $56.11 million on 30 September 2020 and $291.92 million on 31 December 2021.

Conversely, Twitter reported a quarterly gross profit of $799 million on 30 September 2021. The quarterly gross profit rose from $575 million on 30 September 2020 and $773 million on 30 September 2020. The quarterly gross profit hit a high of $856 million on 31 December 2021.

However, Twitter is experiencing significant revenue growth. The quarterly revenues rose from $936 million on 30 September 2020 to $1.284 billion on 30 September 2021.

Stockrow estimates Twitter’s quarterly revenues grew by 37.18% in the quarter ending on 30 September 2021 and 74.12% in the quarter ending on 30 June 2021. Thus, Twitter is growing even though it is losing money.

How Much Cash is Twitter Generating?

Moreover, Twitter (NYSE: TWTR) is burning cash and adding debt. For example, Twitter reported an ending cash flow of -$651.96 million on 30 September 2021.

Additionally, Twitter reported a quarterly financial cash flow of -$1.18 billion on 30 September 2021. Twitter is borrowing enormous amounts of money. It reported a quarterly financial flow of $1.159 billion on 31 March 2021.

In contrast, Twitter reported a quarterly operating cash flow of $438.97 million on 30 September 2021. Hence, Twitter is generating some cash from its operations as it takes on debt. The quarterly operating cash flow rose from $255.91 million on 30 September 2021.

Twitter’s total debt grew from $4.348 billion on 30 September 2020 to $5.449 billion on 30 September 2021. In contrast, Twitter’s cash and short-term investments fell from $7.683 billion on 30 September 2020 to $7.414 billion on 30 September 2021.

Is Twitter adding value?

Although it is adding debt. Twitter (TWTR) is adding value. For instance, Twitter’s Total Assets grew from $13.089 billion on 30 September 2020 to $14.589 billion on 30 September 2021.

However, Mr. Market thinks Twitter is losing value. Notably, Twitter’s stock price fell from $51.44 on 11 December 2020 to $44.60 on 13 December 2021.Thus, Twitter’s price is falling, which makes it appear to be a value investment in social media.

Hence, Twitter’s stock is losing value. Plus, Twitter pays no dividend. I consider Twitter a cheap stock but an unstable company that could never make money.

My prediction is that another company will acquire Twitter to get its social media platform. Companies that could buy Twitter include TickTok owner ByteDance.

In the final analysis, I consider Twitter a speculative investment you need to avoid. I think Twitter is a poorly managed company that may never make money.