Twitter Should Return Its $3 Billion to Shareholders

Media

Published: July 27, 2016 8:15 am

Last Updated: January 13, 2020 5:14 am

Despite its failure as a company and its disastrous business model, one positive thing Twitter Inc. (NYSE: TWTR) could do is return its $3 billion in cash and short-term investments to shareholders.

Twitter does not need the money. Its second-quarter EBITDA was a healthy $175 million, up 45% from the same period a year ago. Revenue continues to rise, albeit slowly, up 20% in its most recently announced quarter to $602 million.

Twitter will continue to grow, but not enough for Wall Street, which is another reason a cash dividend or share buyback would be a gift to shareholders. Its third-quarter forecast was weak, but not disastrous, another sign it does not need its cash.

The forecast:

For Q3, we expect:
•   Revenue to be in the range of $590 to $610 million;
•   Adjusted EBITDA to be in the range of $135 to $150 million;
•   Stock-based compensation expense to be in the range of $165 to $175
million;
•   GAAP share count to be in the range of 705 to 710 million shares;
•   Non-GAAP share count to be in the range of 715 to 725 million shares

For the year, its capital expenditures are expected to $300 million to $325 million, which it can get via net cash provided from operating activity or debt.

The cash distribution would be a partial reward for shareholders who have watched Twitter’s share price fall 50% in the past year, as well as 10% after the announcement of its results. Twitter’s market cap is only $12 billion. That makes $3 billion more than a modest sum.

Based on current sentiment of analysts and shareholders, Twitter’s new initiatives will not be better than its old ones. Marketers don’t see it as a good platform. Its foray into video has not impressed anyone. If Twitter has any future at all, it is as a bit player in social media that will have a flat user base and very modest revenue growth — maybe as low as 10% per year.

Twitter can throw the dog a bone via stripping its balance sheet of cash, and it should.

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