Valuing Twitter Inc Is Not As Easy As It Sounds

Valuing Twitter Inc Is Not As Easy As It Sounds

Twitter’s using a pro forma earnings metric for valuation purposes is seen as “uniquely treacherous” by analysts at Sanford C. Bernstein.  The analysts noted that the company’s stock-based compensation is very huge, and this makes it difficult to correctly value the company.

Stock compensation for Twitter is massive

In a research note on Tuesday, the firm’s analysts observed Wall Street’s regular practice of using earnings metrics for Internet companies that do not include stock-based compensation. The research firm said that stock-based compensation is a “relatively underappreciated operating expense,” even when there is nothing innately wrong with using any given metric certainly and consistently.

When doing so, the research firm singled out Twitter, saying that the use of pro-forma earnings for valuation purposes is particularly unreliable. Twitter’s stock-based compensation charge is larger than earnings before interest, depreciation, amortization and taxes. Similar concerns were highlighted during Twitter’s November 2013 initial public offering. Bernstein noted that the metric was 247% of pro forma earnings last year, compared to 46% for Facebook. And this makes it hard to determine Twitter’s valuation.

Massif Capital’s Top Short Bets In The Real Asset Space [Exclisuve]

Screenshot 2022 08 10 18.57.51 1Since its founding by Will Thomson and Chip Russell in June 2016, the Massif Capital Real Asset Strategy has outperformed all of its real asset benchmarks. Since its inception, the long/short equity fund has returned 9% per annum net, compared to 6% for the Bloomberg Commodity Index, 3% for the 3 MSCI USA Infrastructure index