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Growing pains of the tweeting giant

Twitter increased user numbers by 26.3 per cent last year
Twitter increased user numbers by 26.3 per cent last year
JEFF CHIO/A

It would be easy enough to squeeze a profit warning into a short-form tweet. That’s not what the owner of the social media phenomenon did in its financial results on Tuesday, but a warning by Twitter of a likely slowdown in user growth might still have been unsettling for some.

Most of Twitter’s recent commentary about its performance during the fourth quarter and over the whole of last year was overwhelmingly positive — as was its guidance about future revenue.

And a near 3 per cent rise in its shares after the numbers were published suggests that investors remain convinced about the company’s momentum.

Twitter was set up in 2006 by a group of entrepreneurs that included Jack Dorsey, 44, and it listed on the New York Stock Exchange in 2013 for $26 a share. Its success has been propelled by people’s swelling desire to communicate swiftly with each other and at the end of last year it had 192 million daily average users.

The company, which competes with the likes of Snap, Instagram and Facebook, makes most of its revenue through advertising, but also earns money from licensing data.

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Twitter pays no dividend so the main investment case for the prospective share buyer is growth.

Covid-19 led to a surge in user numbers for Twitter: the increase of 26.3 per cent last year followed a rise of 20.6 per cent the previous year and a similar percentage figure for 2018.

Given that the platform faces very strong comparables over the coming months, it should come as little surprise that Twitter briefed shareholders to expect growth in the “low single digits” when assessed year on year in 2021. That really means it is preparing for a return to business as usual — and it is telling that the company is sticking to its ambition of generating a compound annual growth rate of at least 20 per cent against the 152 million users it had at the end of 2019.

Although Twitter undershot analysts’ forecasts on users — its followers had been looking for growth to more than 196 million — the group came in ahead on turnover and profit.

Revenue of just under $1.3 billion and a pre-tax profit of $224 million in the three months to the end of December, for example, were stronger than expected and represented rises of a respective 29.1 per cent and 41.8 per cent from the previous year.

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That is not to say there are no concerns. Like its social media competitors, Twitter is facing scrutiny over censorship and the rights to free speech. The company was both lauded and panned for banning the former US president, Donald Trump, for his alleged incitement of protests in Washington, and it is battling with the Indian government over a directive to block accounts, parts of which it is contesting.

What does seem clear, though, is that Twitter has shaken off the worry that it would be just a passing fad, gradually disappearing as users move on to the next big social thing.

Growth seems to keep coming. The midpoint of its guidance of revenue of $940 million to $1.04 billion for the current quarter, for instance, would mark a 22.6 per cent rise compared with the first quarter of last year. Obviously, the more users Twitter has — it remains well behind Facebook’s daily average of 1.84 billion — the more clout the company has with advertisers.

Twitter’s shares, which were up just over 13 per cent yesterday at $67.77, are very highly rated, valued at 66.5 times this year’s forecast earnings, against only 24 times for Facebook. At that level, while the company may be attractive the valuation is not.

Advice Avoid
Why The company should be able to sustain its strong growth momentum but the shares are very expensive

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Syncona
One of the main assets of Syncona, the Wellcome Trust-backed life science investment company, became the latest in the sector to tap into the buoyant market yesterday (Alex Ralph writes).

Autolus Therapeutics, a cancer treatment company listed on the biotech-heavy Nasdaq index, raised $100 million (£72.3 million) issuing almost 14.3 million shares at $7 each.

Syncona has agreed to contribute about $25 million in the offering, meaning it will retain a stake of about 26.2 per cent, valued at £106 million on Tuesday.

The fundraiser is the latest development in Syncona’s promising pipeline. The FTSE 250 company was created in 2012 through £100 million of seed funding from the Wellcome Trust, one of the biggest charitable foundations. It reversed into Bacit, a London-listed investment group, three years later.

The publicly listed investment company aims to fill a gap in the UK market by helping to develop and commercialise the country’s promising scientific research base.

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Syncona has a portfolio of ten companies and is looking to expand to up to 20. For the past couple of years it has been monetising some of its most advanced companies and bringing forward its second wave.

Autolus, whose technology originates from University College London, raised $150 million on the Nasdaq in June 2018 at $17 a share. Despite the fall in share price since, Martin Murphy, Syncona’s chief executive and a government adviser, remains excited by Autolus’s potential treatment of a type of leukaemia. Last month, it outlined plans to prioritise the treatment through to later-stage trials, cut costs and shake up senior leadership.

The fluctuations in Autolus’s shares buffeted Syncona’s net asset value last year and the firm has also been hindered by delays to trials because of the pandemic.

Syncona's net assets stood at £1.37 billion for the six months to the end of September, up from £1.25 billion in March 2020, or 203½p per share. It had a net asset value total return of 9.6 per cent in that period and its life science portfolio was valued at £666.6 million, up from £479.5 million.

Advice Buy
Why Gives generalist investors access to long-term, more diversified, less risky science

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