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Abstract

Twitter Inc. has emerged as a leader in real-time data distribution. Twitter has a powerful
brand image with its great product. However, the company has a weak financial status.
Twitter has low margins, stagnated growth and heading towards a financial decline in
addition to $2.26 Billion in debt. In my project, I'm going to provide an analysis of the
Twitter financial health.

Introduction
Twitter is an online news and social networking service where its users post and interact
with other users via messages known as tweets. These messages restricted to 140-character
limit as compared to the normal text message but on November 7, 2017, the character limit
has been doubled to 280 for all languages except for Japanese, Korean and Chinese.
Registered users can post a read but unregistered users are restricted to the only read.
Users can access Twitter through website or mobile interface. Twitter is based in San
Francisco, California, united states and has more than 25 offices around the world.
Twitter was created by Jack Dorset, Noah Glass, Biz Stone and Evan Williams in March 2006
and was launched in July of that year. The service gained popularity worldwide. Twitter is a
service for friends, family, and co-workers to communicate and stay connected through the
exchange of messages. Twitter proved to be the largest source of breaking news with 40
million related tweets sent by 10 pm on 2016 US presidential elections.
In order to strengthen their capabilities and advance its market position, Twitter Inc. has
acquired 54 companies in total. Despite this, Twitter has strayed very little from its value
proposition prior to its Initial Public Offering (IPO) which was on Nov 7, 2013.

Revenue Model[1]
The Twitter revenue model is based on data reselling and advertising. Twitter lacks concrete
demographic information with respect to other internet business with the same advertising
revenue model. Due to lack of information like gender and age, Twitter cannot sell highly
targetted adds at a higher rate like its competitor Facebook.
Almost 89% of Twitter revenue comes from advertisement sales. Twitter annual revenue of
2016 from ads turns out to be US$ 2.24 billion. An individual or company can advertise on
Twitter by either[2]

 Promoting a particular trend (i.e. hashtag-driven topic)


 Promoting an entire account
 Promoting a tweet that will appear in a people timeline
Videos and photo previews are displayed a; along with the text enabling the company to
target audience better. Twitter charges advertisers based on the number of interactions
that the tweets generate. Advertisers pay on per-click or per re-tweet basis. Advertisers also
participate to place their content on a particular space.
Twitter sells its public data that amounts to around 500 million tweets each day to various
companies. The companies will utilize this data to analyze consumer trends and behavior so
that it will generate insights about brands and companies, because of the volume of data
companies can learn about their users in detail manner something a normal user can’t do.
With sophisticated analysis, companies can learn in detail about their users Though there is
a slowdown in the advertising revenues, the high-margin data licensing business is growing.
In 2016, Twitter generated US$ .281 billion of revenues from data licensing.

Analysis of Twitter Current Financial Situation


On analyzing Twitter annual reports, the company assets in 2016 were $68703,65,000 and
debt has been reported at $22,654,30,000. The assets were higher than in 2015 which were
reported at $64,424,39,000 however liabilities increased from $20,743,92,000
The equity is at $46,049,35,000, its debt-equity ratio is calculated at 49.2% at the end of
2016.Its debt-equity ratio is ranked lower than 62% of the 199 companies in global internet
content & information industry. Industry median is 0.26 vs TWTR 0.37 which is higher than
industry median. Which means Twitter is aggressively financing its growth with debt. This
can result in volatile earnings as a result of additional interest expense. Debt may not
necessarily be bad, but it inevitably plays a role in future revenue growth. Twitter has a
current ratio of 11.8 at the end of 2016. It shows the company may not be well using its
current assets or its short-term financing facilities. This may also specify problems in
working capital management.
To broadly look at twitters financial health, we have to look at several aspects. Two major
aspects are ROIC which is an indicator that how well the company is generating cash flow
relative to capital, it has invested in its business and ROE which shows how well a company
generates earnings growth using investment funds.For twitter 2016 both ROIC and ROE are
negative with -15.5% in ROIC and -10.8% in ROE respectively. These numbers show that
Twitter is bleeding lot of money which means twitter earnings returns that cant matchup
with its cost to the value it grows.

From 2012 to 2016, Twitter’s Net Cash from Operating Activities was positive, Net Cash by
Investing Activities was negative, and Net Cash provided by Financing Activities was
negative. this shows that they have tried to occupy market share with increasing sale and
also tried to achieve more investment.their cash flow from financing has been reducing
gradually which shows their drop in stock price.Twitter made investments in these years,
especially on Purchase/Sale of Investments and Capital Expenditures. Twitter’s Capital
Expenditures came at uttermost of $347.28 Million in 2015.
Twitter's financial growth and decline.

In 2016, cost of revenue, which included technical assistance center of $141.6 million.this
increase was primarily related to a $64.3 million rise in networking, hosting and data center
costs related to our co-located facilities, a $54.6 million increase in depreciation expenses
related to additional server and networking equipment.increase in $47.9 million increase in
restructuring expenses due to the amortization of acquired intangible assets.
Twitter percentage of revenue shows that sales and marketing played a vital role in twitters
net loss by contributing 38% of selling and marketing expenses for 2016 is $.957 billion.
2016 Compared to 2015. Sales and marketing expenses in 2016 increases by $86.3 million
compared to 2015. this increase was mai=nly related to facilities and other-other supporting
overhead expenses due to increase support head functions by $31.9 million.a $27.6 million
increase in restructuring expenses mainly because of reduction in workforce at the end of
2016, a $21.8 million increase in personnel-related costs, because of increase in
compensation expense, and a $16.5 million increase in amortization of acquired intangible
assets, compensation by an $11.5 million decrease in marketing and sales-related expenses
whereas General and administration expenses contributing 12% for 2016 is $.293 billion. the
percentage of twitter SGA relative to total revenue is 50% which shows the lower efficiency
of operations. efficient operations will always keep SGA costs always low and the result will
have a high gross profit margin. In 2016, general and administrative expense increased by
$32.6 million compared to 2015. The increase was mainly attributable to a $17.1 million
increase in personnel-related costs, driven by an increase in compensation expense from an
increase in average employee headcount, a $6.8 million increase in facilities and supporting
costs not allocated to other functions, a $6.5 million increase in fees and costs for
professional services, and a $5.6 million increase in restructuring expenses. The increases
were offset by a $3.4 million increase in the capitalization of costs associated with
developing software for internal use

research and development of Twitter show 28% in 2016 showing a declining trend
compared to past years.In 2016, research and development expenses decreased by $93.2
million compared to 2015. The decrease was primarily related to a $69.1 million decrease in
personnel-related costs, mainly driven by a decrease in compensation expense from a
decrease in average employee headcount.

Comments
Expanding project

References:
[1] Das, Sourobh. “How does Twitter Make Money? Twitter Business Model.” Feedough ,Feedough,
24 Aug. 2017, www.feedough.com/how-does-twitter-make-money.

[2] Goel, Vindu. “For Twitter, Key to Revenue Is No Longer Ad Simplicity.” The New York Times ,
The New York Times, 16 Sept. 2013,www.nytimes.com/2013/09/17/technology/for-twitter-key-to-
revenue-is-no-longer-ad-simplicity.html?ref=technology&_r=0.

[3] Twitter Inc. (Dec. 31, 2016). Annual Report 2016, [Online]. Available:
https://www.sec.gov/Archives/edgar/data/1418091/000156459017002584/twtr-