Twitter Stock: The Biggest Positive For Twitter Inc (TWTR) Stock In 2016

  • Twitter's wins in live streaming aren't going unnoticed. Competitors like FB, AMZN, etc will up the ante.
  • Content licensing can be an expensive game to play, especially if bidding wars break out.
  • But Twitter seems to have found a way to take on the big guys.

San Francisco, California based micro-blogging site Twitter (NYSE:TWTR) has arguably tasted success in its live streaming initiatives, but that's not going unnoticed. Deep pocketed competitors like Facebook (NSDQ:FB), Amazon (NSDQ:AMZN) and Walt Disney (NYSE:DIS) backed ESPN are also bidding for rights to live events, and will up the ante. Content licensing can be an expensive game to play, especially if bidding wars break out. In the context of keeping its live streaming dreams alive, generating positive cash flows becomes increasingly important. And Twitter's progress on that front is quite impressive so far.

Cash Flows Have Improved And Could Get Even Better

Twitter is still making big losses, especially when you consider the fact that it's not even growing at the pace it once did. However, the company's rather new-found ability to generate positive cash flows does strike you as a big positive. In its most recent quarter, Twitter generated $189 million in operating cash flows. While Twitter's Operating Cash Flows (OCF) have almost always been in the green, the growth in this metric is quite impressive. While Twitter's Q3 tally of $189 million was lower than Q2's $214 million, it was the second highest ever. Over the last four quarters, Twitter recorded operating cash flows of ~$666 million, which is substantially higher than the ~$82 million figure for FY 2014, and ~$383 million recorded in FY 2015.

Also Read: The First Signs Of A Turnaround Emerge For Twitter

The improvement is way more significant when it comes to Free Cash Flows (FCF). Twitter recorded its fourth straight quarter of positive free cash flows, a first in the company's history. For Q3, Twitter reported free cash flows of ~$80 million, which again represents a slippage compared to Q2's $154 million, but the figure is still the third highest Twitter has ever registered. For the last four quarters, Twitter now has a cumulative free cash flow of ~$345 million, which towers head and shoulders above a negative free cash flow of $260 million in FY 2014, and FY 2015's consolatory positive figure of $4.6 million.

The fact that Twitter has shown improvements on these metrics, even as growth has slowed drastically, is quite encouraging. What's more, these numbers could get better over the course of the next six months. As part of its Q3 earnings release, Twitter announced its decision to slash its workforce by 9%. Further, Twitter's management, which isn't really known for its bottom line focus, conveyed its intent to turn GAAP positive in 2017. Exactly how the company plans to go about this in the absence of strong sales growth remains to be seen. More so now that Twitter's COO Adam Bain, who is known to have set up the growth engine, is scheduled to leave. But at the very least, we know that the intent and focus are directed towards that goal. Either way, the improvements on the cash flows front are noteworthy in the context of growing competition in the live streaming space. (Also Read: An Opportunity 10X Bigger Than The Presidential Debates For Twitter)

The Big Guys Want In On Live Streaming

Twitter has arguably seen some success on the live streaming front. For starters, as fellow writer Nicholas Mushaike noted in a recent post, Twitter won the NFL bid, competing against the likes of Facebook and Amazon, among others. And it did so, despite the fact that it wasn't the highest bidder, or the bidder with the biggest audience. Quoting Brian Rolapp, the NFL’s executive vice president of media:

“We did not take the highest bidder on the table,” “The platform is built around live events already. We want to see how they use the unique platform, and syndicated tweets all over the Internet is going to be interesting.”

And the fact that Twitter managed to attract more live viewership of the US presidential debates than competing platforms like YouTube and Facebook somewhat corroborates Rolapp's theory. However, that's not going to be the case every time. There are bound to be other events where Twitter will come head to head in the bidding process with Facebook, Amazon and possibly Disney's ESPN, among others. Take for instance, rights to the Asian cricket tournament IPL, for which all of these companies were reportedly bidding. And on such occasions, Twitter might not be able to swing decisions in its favor based on its "built for live" reputation alone. That's where these cash flows will come in handy, which is why, they're probably the biggest positive for TWTR stock in 2016, probably even bigger than audience metrics Twitter recorded for the NFL and the presidential debates. Evaluating tech stocks? Check out Amigobulls' top technology stock picks, which have beaten the NASDAQ by over 115%.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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