Twitter action was a 'sell' even before whistleblower revealed security issues

Social media company Twitter (TWTR) is going through a tough time. In addition to poor second-quarter performance, TWTR is waging a legal battle with Elon Musk over his decision to drop a $44 billion deal to buy the communications company. Moreover, the situation has worsened for TWTR since its former chief security officer, Peiter Zatko, filed a whistleblower complaint raising security concerns against the company. Read on….

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Peiter Zatko, former chief security officer of Twitter, Inc. (TWTR), turned whistleblower and testified that the company misled users and federal regulators over shortcomings in its security. Zatko further claimed that TWTR had underestimated the number of fake accounts and spam on its platform and was riddled with dangerous security issues.

Even before the former security chief's allegations, TWTR shares have fallen sharply since Tesla, Inc. (TSLA) CEO Elon Musk threatened to end his $44 billion deal to buy TWTR. Musk accused the social media company of hiding information about the number of bot and spam accounts on the platform. Musk's attorney, Mike Ringler, claimed TWTR failed to meet its contractual obligations.

In addition, TWTR has filed a lawsuit to enforce the agreement. On July 12, the company filed a lawsuit against Elon Musk in the Delaware Court of Chancery. On the other hand, on July 29, Musk counterattacked Twitter, further intensifying the legal battle. Additionally, recent whistleblower allegations could potentially stir up the ongoing trail between TWTR and Elon Musk.

Over the past year, TWTR is down 36% to close the last trading session at $41.05. The stock is currently trading 40% below its 52-week high of $68.41, which it reached on October 20, 2021.

Here's what I think could influence TWTR's performance in the coming months:

Deterioration of finances

For the second quarter of Fiscal 2022 ended June 30, 2022, TWTR revenue decreased 1.2% year-over-year to $1.18 billion. Business costs and expenses increased 31.1% from the previous year's value to $1.52 billion. Its operating loss was $343.76 million, compared to a gain of $30.25 million the previous year.

In addition, TWTR's net loss and loss per share were $270.01 million and $0.35, increasing 511.3% and 537.5% year-on-year, respectively. the other. Free cash provided by operating activities was $29.70 million, down 92.2% year-over-year.

Dark growth prospects

Analysts expect the company's revenue to grow 3.9% year-over-year to $1.63 billion in the fourth quarter of fiscal 2022 (ending in December 2022). However, the consensus EPS estimate for the same quarter is expected to come in at $0.26, a deterioration of 20.9% from the same period in 2021.

In addition, the company's EPS for fiscal 2023 (ending December 2023) is expected to decline 21.5% year-over-year to $0.82. Additionally, the company has not met consensus revenue estimates in three of the past four quarters.

Low profitability

In terms of EBITDA margin over the last 12 months, TWTR's 4.04% is 79.4% below the industry average of 19.57%. And its trailing 12-month net income margin of minus 2.14% is below the industry average of 5.73%. Similarly, the stock's leveraged trailing 12-month FCF margin of 0.50% is 93.8% below the industry average of 8.01%.

Furthermore, TWTR's ROCE, ROTC and ROTA over 12 months are negative 1.64%, 1.31% and 0.62% compared to 8.01%, 6.66% and 3, 58% of the sector, respectively.

High valuation

In terms of forward non-GAAP P/E, the TWTR of 39.43x is 128.5% above the industry average of 17.26x. Its forward EV/EBITDA of 30.39x is 249.8% above the industry average of 8.69x. Similarly, the stock's 5.86x forward price/sales is 335.6% above the industry average of 1.35x.

Furthermore, the stock's forward price/book value of 4.21x is 105.4% higher than...