IPO, Twitter

8/14/2019 IPO, Twitter

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Company ReportOctober 28, 2013

Twitter, Inc.TWTR - Initiating Coverage Ahead of the IPO next week

Our Call

Our valuation work suggests in the base case TWTR shares could be worth $25to $32 in the next 12 to 24 months, respectively. In the upside case, shares could

be worth $33 to $48 while in the downside case, shares could be worth $13 to $15

during the same period. As such, if the IPO is priced in the $17 to $20 range, shares

would appear attractive from a risk-reward standpoint.

We are launching coverage of the company but not establishing a rating or price

target yet, pending the completion of the IPO next week.

A leading social network.Twitter is one of the worlds leading social networks

(232 million Monthly Active Users, including 53 million in the U.S.), allowing

users to create, distribute, and discover content in real time on the web and mobile

devices. Mobile is the primary driver for Twitter, as 76% of the monthly active

users (MAUs) in the most recent quarter accessed Twitter via mobile. Additionally,

over 70% of the advertising revenue was from mobile in the most recent quarter.TWTRs international user base represents 77% of the total, yet only 25% of the

revenue is international, representing a significant growth opportunity long-term.

Value Proposition for Advertisers and Platform Partners.Twitters scale anddeeply engaged user base create valuable opportunities for advertisers to leverage

the platform. Advertisers can communicate directly with their followers for free,

or they can purchase Twitters advertising services to reach a broader audience.

Twitters platform partners include publishers, media, outlets, and developers, who

have integrated with Twitter through an application programming interface (API),

which allows them to seamlessly leverage Twitter as a complementary distribution

channel for their content. Twitter plans to continue to integrate more content into

their API to allow platform partners to distribute more forms of content.

Data Licensing.While advertising is the primary revenue driver, TWTR derived11% of its revenue from Data Licensing. Twitter sells data licenses, providing

data partners with detailed historical and real-time analytics regarding users

interactions with the platform. Data partners pay a monthly licensing fee to use

the data, over the period in which the data is made available to them (typically

2 years). Twitters top five data partners accounted for roughly 73% of its data

licensing revenue in the first 9 months of 2013.

IPO Details.Twitter plans to list on the NYSE under the symbol TWTR. Based

on most recent filings, the company plans to issue 70 million shares (80.5

million shares including overallotment). Assuming an IPO pricing of $17-$20, the

company could raise $1.2B (70M shares x $17 per share) to $1.6B (80.5M shares

x $20 per share) before fees.

Interactive Entertainment /Internet

Arvind Bhatia, CFA(214) [email protected]

Brett Strauser(214) [email protected]

Company DataMarket Capitalization (M) N

Avg. Daily Vol. (000) N

Assets (M) $2,15

Revenue ($M) 2012A 2013E 2014FY 316.9 617.2 985.

FYE Dec 2012A 2013E 2014E

(Curr) (Curr) (Curr)EBITDA (M)

Q1 (Mar) (0.9) 11.7A 24.0

Q2 (Jun) 1.5 9,647.0A 30.3

Q3 (Sept) 2.9 9.3A 35.9

Q4 (Dec) 17.6 25.4 44.4

FY EBITDA (M) 21.2 56.0 134.5

Price Performance

Chart Data Not Available

Source: FactSet

Important Disclosures regarding Price Target Risks, Valuation Methodology, Regulation Analyst CertificationInvestment Banking, Ratings Definitions, and potential conflicts of interest begin on Page I of the Appendix Secti

800 Shades Creek ParkwaySuite 700Birmingham, AL 35209205-949-3500Sterne, Agee & Leach Inc. is Member NYSE, FINRA, SIPC


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EXECUTIVE SUMMARY

A leading social network. Twitter is one of the worlds leading social networks(232 million Monthly Active Users, including 53 million in the U.S.), allowing usersto create, distribute, and discover content in real time on the web and mobile devices

Value Proposition for Advertisers. Twitters scale and deeply engaged user basecreate valuable opportunities for advertisers to leverage the platform. Advertisers

can communicate directly with their followers for free, or they can purchaseTwitters advertising services to reach a broader audience.

Value Proposition for Platform Partners. Twitters platform partners includepublishers, media, outlets, and developers, who have integrated with Twitter throughan API which allows them to seamlessly leverage twitter as a complementarydistribution channel for their content. Twitter plans to continue to integrate morecontent into their API to allow platform partners to distribute more forms of content.

Data Licensing. Twitter sells data licenses, providing data partners with detailedhistorical and real-time analytics regarding users interactions with the platform. Inthe first 9 months of 2013, 11% of Twitters revenue came from Data LicensingData partners pay a monthly licensing fee to use the data, over the period in which

the data is made available to them (typically 2 years).

Mobile.Mobile is the primary driver for Twitter, as 76% of the MAUs in the mostrecent quarter accessed Twitter via mobile. Additionally, over 70% of theadvertising revenue was from mobile in the most recent quarter.

International. International revenue for the 9 months ended Sept. 30 was 25% ofoverall revenue (up from 17% of revenue in the year-ago period) even though 77%of Twitters user base is international. International monetization is a key element oTwitters growth strategy.

IPO Details.Twitter plans to list on the NYSE under the symbol TWTR. Based onthe most recent filings, the company plans to issue 70 million shares (80.5 millionshares including overallotment). Assuming an IPO pricing of $17-$20, the companycould raise $1.2B (70M shares x $17 per share) to $1.6B (80.5M shares x $20 pershare).

Valuation Framework.Given Twitter is still in heavy investment mode, we thinkthe companys top-line rather than bottom-line metrics are more appropriate forvaluation purposes, at least in the near term. We have provided 3 scenarios a basecase, an upside case and a downside casein our valuation discussion.

o Our base case suggests TWTR could be valued around $25 per share a yearfrom now and around $32 per share two years from now.

o Our upside case suggests TWTR could be valued around $33 per share ayear from now and around $48 two years from now.

oOur downside case suggests TWTR could be valued around $13 per share ayear from now and around $15 per share two years from now.

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TWITTER VALUATION FRAMEWORK: FOCUSING ON TOP-LINE GROWTH

AND MULTIPLE OF SALES

Given Twitter is still in heavy investment mode, we think the companys top-line rather thanbottom-line metrics are more appropriate for valuation purposes, at least in the near term. Wehave provided 3 scenarios a base case, an upside case and a downside case in ourvaluation discussion. For an interactive model, please contact your Sterne Ageerepresentative.

Base Case

Assumptions:

1. Advertising segment revenue growth of 64% /45% in 2014/ 2015 compared to anestimated 106% in 2013.

2. Data Licensing segment revenue growth of 25% /25% in 2014 / 2015 compared to anestimated 33% in 2013.

3. 80.5 million shares are issued in the IPO, i.e., overallotment is exercised.4. Total Shares Outstanding of 705M shares, including 80.5 million new shares in the

IPO.

5. Shares are issued at $20 per share leading to a capital raise of $1.6B and pro-formacash of $1.9B.

6. At $20 per share, TWTR would currently be valued at an estimated 12x 2014 Salesor in line with its high-growth peers (FB, LNKD, YELP).

7. If this EV to 1 Yr Forward Sales multiple of 12x were to sustain for a year, TWTRcould be valued at $25 per share at the end of 2014.

Furthermore, if this 1 Yr Forward Sales multiple of 12x were to sustain for two years, TWTRcould be valued at $32 per share at the end of 2015.

Twitter Inc. Valuation: Based on Multiple of Revenue

Base Case Actual

$MM 2012 2013 2014 2015 2016 2017 2018

Advertising Revenue $269 $554 $906 $1,310 $1,772 $2,284 $2,804

Data Lincensing Revenue $48 $63 $79 $99 $124 $155 $193

Total Revenue $317 $617 $985 $1,409 $1,895 $2,438 $2,997

Adj. EBITDA Margin 7% 9% 14% 19% 29% 35% 38%

Incremental EBITDA Margin 30% 12% 21% 32% 58% 57% 49%

Adj. EBITDA $21 $56 $135 $271 $552 $861 $1,132

1 Yr Forward Sales Multiple at Yr End 12x 12x

Enterprise Value at Yr End $15,722 $21,259

Market Cap at Yr End (including net Cash) $17,589 $23,125

Shares Outstanding (MM) 706 723

Share Price at Yr End $25 $32

Y/Y Growth

Advertising Revenue 247% 106% 64% 45% 35% 29% 23%

Data Lincensing Revenue 66% 33% 25% 25% 25% 25% 25%

Total Revenue 198% 95% 60% 43% 34% 29% 23%

Adj. EBITDA 165% 140% 101% 104% 56% 32%

Source: Sterne Agee Estimates, Company Reports

Estimates

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Upside Case: Incremental revenue growth 20% above base case for advertising and 5%above base case for Data Licensing in each year.

Assumptions:

1. Advertising segment revenue growth of 84% /65% in 2014/ 2015 compared toan estimated 106% in 2013.

2. Data Licensing segment revenue growth of 30% /30% in 2014 / 2015 comparedto an estimated 33% in 2013.3. 80.5 million shares are issued in the IPO, i.e., overallotment is exercised.

4. Total Shares Outstanding of 705M shares, including 80.5 million new shares inthe IPO.

5. Shares are issued at $20 per share leading to a capital raise of $1.6B and pro-forma cash of $1.9B.

6. At $20 per share, TWTR would currently be valued at an estimated 12x 2014Sales or in line with its high-growth peers (FB, LNKD, YELP).

7. If this EV to 1 Yr Forward Sales multiple of 12x were to sustain for a year,TWTR could be valued at $33 per share at the end of 2014.

8. Furthermore, if this 1 Yr Forward Sales multiple of 12x were to sustain for twoyears, TWTR could be valued at $49 per share at the end of 2015.


Upside Case

Incremental 20% annual g rowth in Advertising; incremental 5% growth in Data Licensing relative to Base Case

Actual

2012 2013 2014 2015 2016 2017 2018

Advertising Revenue $269 $564 $1,035 $1,704 $2,645 $3,938 $5,623


Total Revenue $317 $627 $1,117 $1,811 $2,784 $4,119 $5,858


Incremental EBITDA Margin 30% 14% 23% 30% 50% 50% 46%

Adj. EBITDA $21 $63 $175 $384 $866 $1,536 $2,329




Shares Outstanding (MM) 706 723Share Price at Yr End $33 $48

Y/Y Growth



Total Revenue 198% 95% 78% 62% 54% 48% 42%

Adj. EBITDA 199% 177% 119% 126% 77% 52%


Estimates

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Downside Case: 20% slower revenue growth in advertising and 5% slower growth in DataLicensing relative to Base Case in each year.

Assumptions:

1. Advertising segment revenue growth of 44% /25% in 2014/ 2015 compared toan estimated 106% in 2013.

2. Data Licensing segment revenue growth of 20% /20% in 2014/2015 comparedto an estimated 33% in 2013.

3.

80.5 million shares are issued in the IPO, i.e., overallotment is exercised.4. Total Shares Outstanding of 705M shares, including 80.5 million new shares inthe IPO.

5. Shares are issued at $20 per share leading to a capital raise of $1.6B and pro-forma cash of $1.9B.

6. At $20 per share, TWTR would currently be valued at an estimated 12x 2014Sales or in line with its high-growth peers (FB, LNKD, YELP).

7. In the downside case, we assume a meaningful contraction in the 1 Yr ForwardEV to Sales multiple from that at the time of the IPO. We assume a 33%contraction to 8x versus our assumption of a 12x forward multiple at the time ofthe IPO.

8. Assuming an EV to 1 Yr Forward Sales multiple of 8x, TWTR could be valuedat $13 per share at the end of 2014.

Furthermore, if the lower 1-Yr Forward Sales multiple of 8x were to sustain for twoyears, TWTR could be valued around $15 per share at the end of 2015.


Downside Case

20% slower growth in Advertising; 5% slower growth in Data licensing Relative to Base (Starting 2014)

Actual

2012 2013 2014 2015 2016 2017 2018

Advertising Revenue $269 $554 $795 $991 $1,241 $1,475 $1,664


Total Revenue $317 $617 $871 $1,082 $1,350 $1,607 $1,822


Incremental EBITDA Margin 30% 12% 21% 36% 52% 49% 28%Adj. EBITDA $21 $56 $110 $186 $326 $452 $512




Shares Outstanding (MM) 706 723

Share Price at Yr End $13 $15

Y/Y Growth



Total Revenue 198% 95% 60% 43% 34% 29% 23%

Adj. EBITDA

Source: SterneAgee Estimates, Company

Estimates

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Current Suggested IPO Price Per Share $17.00 $18.00 $19.00 $20.00

Pro Forma Shares Out. (M) 706 706 706 706

Mkt Cap Post IPO- $BB $12.0 $12.7 $13.4 $14

Pro Forma Cash $1.7 $1.8 $1.9 $1.9

Pro Forma Enterprise Value $10 $11 $12 $12Pro Forma EV to Sales TWTR

2013 17x 18x 19x 20x

2014 10x 11x 12x 12x

2015 7x 8x 8x 9x

EV to Sales Avg: High Growth Peers*

2013 18x 18x 18x 18x

2014 13x 13x 13x 13x

2015 9x 9x 9x 9x

(* includes FB, LNKD and YELP)

TWTR Premium (Discount) to High Growth Peers2013 -8% -2% 3% 9%

2014 -17% -12% -7% -2%

2015 -22% -17% -12% -8%


TWTR EV to Sales: Relative Valuation Vs High Growth Peers

Current Suggested IPO Price Per Share $17.00 $18.00 $19.00 $20.00

Pro Forma Shares Out. (M) 706 706 706 706

Mkt Cap Post IPO- $BB $12.0 $12.7 $13.4 $14Pro Forma Cash $1.7 $1.8 $1.9 $1.9

Pro Forma Enterprise Value $10 $11 $12 $12

Pro Forma EV to EBITDA TWTR

2013 184x 195x 206x 217x

2014 77x 81x 86x 91x

2015 38x 40x 43x 45x

EV to EBITDA Avg: High Growth Peers*

2013 85x 85x 85x 85x

2014 48x 48x 48x 48x

2015 30x 30x 30x 30x

(* includes FB, LNKD and YELP)

TWTR Premium (Discount) to High Growth Peers

2013 117% 130% 143% 156%

2014 59% 69% 79% 88%

2015 26% 33% 41% 48%


TWTR EV to EBITDA: Relative Valuation Vs High Growth Peers

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Twitters Long-Term Margin Target Model. On a non-GAAP basis, Twitters AdjustedEBITDA margins were ~ 7% in 2012 as well as for the 9 months ended September 30 th, 2013Twitters long-term adjusted EBITDA margin target is in the range of 35% to 40%, as shownin the table below. We see this as reasonable, given the margin profile of other Internetcompanies, including social media companies such as Facebook (mid-50s), LinkedIn (30s)etc.

COMPANY BACKGROUND

Twitter is one of the worlds leading social networks, allowing users tocreate, distribute, anddiscover content in real time on the web and mobile devices. The company was founded in2007 and is headquartered in San Francisco. Twitter is free for users and any user can createa Tweet,a post (with or without a photo) consisting of 140 characters or less. Users can

follow other users including friends, celebrities, athletes, journalists, sports teams, mediaoutlets, and brands. Twitter has 232 million monthly active users and 100 million daily activeusers, who collectively create roughly 500 million tweets per day.

Source: Company Reports & Sterne Agee Estimates

2012 2013 YTD Target Range Target Mid-Point

Cost of Revenue 34% 33% 21% to 23% 22%

Gross Margin 66% 67% 77% to 79% 78%

R&D Costs 34% 35% 19% to 21% 20%

Selling & Marketing 27% 30% 19% to 21% 20%

G&A 15% 11% 10% 10%

D&A 17% 16% 10% 10%

Adj. EBITDA Margin 7% 7% 35% to 40% 38%

Source: Company, Sterne Agee

Twitter Target Model (Non-GAAP)

US

23%

International

77%

Twitter's User Base

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Advertising Value of the Platform. Twitters scale and deeply engaged user base createvaluable opportunities for advertisers to leverage the platform. Advertisers can communicatedirectly with their followers for free, or they can purchase Twitters advertising servic es toreach a broader audience. As users engage with the platform, Twitter learns about theirinterests. Twitter integrates this user data into a set of promoted products, allowingadvertisers to run more targeted and relevant campaigns on Twitter. Additionally, advertisersare increasingly supplementing their offline advertising campaigns with content from theirTwitter campaigns. For example, integrating hash tags into a television commercial extends

the reach of the ad by creating an opportunity for users to continue the conversation onTwitter.

MoPub Twitter agreed to acquire MoPub in September 2013. MoPub is a mobileadvertising exchange which Twitter plans to integrate with the Twitter advertising platform toallow real-time bidding so that advertisers can more easily automate and scale their adpurchases. TWTRs S-1 filings indicate MoPub was purchased for 14.79M shares of TWTRThe acquisition is expected to close in October/November 2013.

TYPES OF PROMOTED PRODUCTS

Promoted TweetsThese appear within a users timeline and look like an ordinary tweetThey are pay-for-performance advertising and pricing is set through an auction. Advertiserspay Twitter when a user engages with a tweet.

Promoted AccountsAdvertisers can pay to have their accounts promoted within the whoto follow section of Twitter. They appear in the same format as non-promoted accountsThis provides advertisers with an opportunity to grow their number of followers, building acommunity of users that are interested in their business, product, or service. These are alsopay-for-performance advertising, so advertisers pay Twitter when a user follows a PromotedAccount.

Promoted TrendsPromoted Trends appear at the top of the list of trending topics for anentire day in a particular country or on a global basis. When a user clicks on a promotedtrend, they are taken to a page that displays search results for that trend as well as a promoted

Tweet from the advertiser at the top of the page. Promoted Trends are the only advertisingservice that is sold on a fixed-fee-per-day basis. Twitter features one promoted trend per dayper geography, and advertisers pay Twitter when the promoted trend is displayed

Data Licensing

Twitter sells data licenses, providing data partners with detailed historical and real-timeanalytics regarding users interactions with the platform. In the first 9 months of 2013, 11%

of Twitters revenue came from Data Licensing, but the company expects this percentage todecrease over time as this segment is growing slower than the advertising segment. Datapartners pay a monthly licensing fee to use the data, over the period in which the data is madeavailable to them (typically 2 years). Twitters top five data partners accounted for roughly73% of its data licensing revenue in the first 9 months of 2013. Some of the key resellers of

Twitters data licensing business include Datasift, Gnip and Topsy.

Mobile. We think one of the key positives for TWTR is that it is already successful onmobile. Mobile is the primary driver for Twitter, as 76% of the monthly active users (MAUs)in the most recent quarter accessed Twitter via mobile. Additionally, over 70% of theadvertising revenue was from mobile in the most recent quarter. The company believes thamobile users as a percentage of total will continue to grow in the near term.

International. International revenue was $107M for the 9 months ended Sept. 30, or 25% ofrevenue (up from 17% of revenue in the year-ago period) even though 77% of Twitters userbase is international. Most of the growth in the user base in the recent quarters has also comefrom outside the U.S. Management is focused on growing international revenue and closingthe gap with the U.S. Recent sales and marketing efforts have focused on countries such as

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Australia, Brazil, Canada, Japan and the U.K. In the most recent quarter, Twitters advertisingrevenue per Timeline View was $2.58 (+50% y/y) in the U.S. and $0.36 (+112%) in the restof the world, highlighting the potential monetization opportunity that exists in the rest of theworld. Advertising revenue per Timeline View is calculated by dividing the advertisingrevenue per 1,000 timeline views (similar to the idea of CPMs).


Advertising Industry Trends. According to eMarketer, the worldwide digital advertisingindustry will be around $118 billion in 2013, up 13% y/y. By 2017, this industry is expectedto grow to $173 billion, CAGR of 11% from 2012-2017. Within this, the mobile advertisingindustry is expected to grow the fastestCAGR of 48% from 2012-2017. Twitter, with itsfocus on mobile, finds itself well positioned to capture this strong growth trajectory of theindustry.

75%

25%

Twitter's Geographic Revenue MixUS International

CAGR2011 2012 2013 2014 2015 2016 2017 13 vs '12 14 vs '13 '12-'17

North America $34.58 $39.70 $45.44 $51.05 $56.24 $61.31 $65.59 14% 12% 11%

Asia Pacific $22.40 $30.58 $33.76 $37.77 $41.78 $45.83 $50.18 10% 12% 10%

Western Europe $23.51 $25.76 $28.39 $31.37 $33.79 $36.09 $38.25 10% 10% 8%

Central & Eastern Europe $2.87 $3.70 $4.55 $5.28 $5.97 $6.50 $7.03 23% 16% 14%

Latin America $2.48 $3.39 $4.11 $5.29 $6.18 $7.23 $8.27 21% 29% 20%

Middle East & Africa $0.59 $0.91 $1.35 $1.86 $2.42 $3.06 $3.80 48% 38% 33%

Total $86.43 $104.04 $117.60 $132.62 $146.38 $160.02 $173.12 13% 13% 11%

Source: eMarketer

CAGR

2011 2012 2013 2014 2015 2016 2017 13 vs '12 14 vs '13 '12-'17

North America $1.38 $4.29 $8.54 $13.32 $19.07 $25.44 $32.20 99% 56% 50%

Asia Pacific $1.77 $2.69 $4.15 $5.85 $8.11 $10.50 $13.05 54% 41% 37%Western Europe $0.78 $1.67 $3.58 $6.40 $9.19 $12.05 $15.19 114% 79% 55%

Central & Eastern Europe $0.04 $0.07 $0.16 $0.27 $0.42 $0.61 $0.82 133% 68% 64%

Latin America $0.04 $0.08 $0.15 $0.29 $0.48 $0.77 $1.20 95% 91% 73%

Middle East & Africa $0.01 $0.02 $0.05 $0.09 $0.14 $0.22 $0.34 139% 71% 74%

Total $4.02 $8.82 $16.64 $26.23 $37.41 $49.59 $62.80 89% 58% 48%

Mobile Ad Spending % Mix by Geography

North America 4.0% 10.8% 18.8% 26.1% 33.9% 41.5% 49.1%

Asia Pacific 7.9% 8.8% 12.3% 15.5% 19.4% 22.9% 26.0%

Western Europe 3.3% 6.5% 12.6% 20.4% 27.2% 33.4% 39.7%

Central & Eastern Europe 1.3% 1.9% 3.6% 5.2% 7.1% 9.4% 11.7%

Latin America 1.7% 2.3% 3.7% 5.5% 7.8% 10.6% 14.5%

Middle East & Africa 1.7% 2.3% 3.7% 4.6% 5.7% 7.2% 8.9%

Total 4.6% 8.5% 14.1% 19.8% 25.6% 31.0% 36.3%

Source: eMarketer

Y/Y Growth

Worldwide Digital Ad Spending, By Region

Y/Y Growth

Worldwide Mobile Ad Spending By Region

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GROWTH STRATEGY

Grow UsersAccording to InternetWorld Stats, as of 2Q 2012 there were approximately 2.4billion internet users. According to Strategy Analytics, there were 1.04 billion smartphoneusers as of the end of 3Q12. With 230 million MAUs, Twitter plans to increase itspenetration by expanding geographically through global partnerships, continuing to developand improve the functionality and adoption of its mobile application, and continuing to buildand acquire new technologies and services to enhance the value of the Twitter platform. As ofthe end of 3Q13, Twitter had 53 M users in the U.S. and 179 M in the rest of the world.


Grow Engagement through growth in Timeline Views Twitter measures its engagemenin terms of timeline views. What is a timeline? When a user logs in to their Twitter account,they land on the Tweets timeline view of their homepage (see below). A users home timelineis a long stream of Tweets from those the user has chosen to follow, with the newest updatesat the top. Timeline Views were 446 billion or an increase of 67% in the first 9 months of2013. During the 3 months ended September 30, 2013, Timeline Views per MAU were 685,up 8% y/y.

Source: Company Website

10 12 14 15 1923 27 30 34

37 40 45 4849 5320

28 3539

4962

7487

104114 127

140156

169179

-

50

100

150

200

250

Twitter Monthly Active Users (MAUs-In Millions)

United States International

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Grow Platform PartnersTwitters platform partners include publishers, media, outlets, anddevelopers, who have integrated with Twitter through an API, which allows them toseamlessly leverage twitter as a complementary distribution channel for their content. TheAPI also allows them to distribute Twitter content across their own properties, and use otherTwitter-created tools to add value to their websites and applications. Twitter plans tocontinue to integrate more content into their API to allow platform partners to distribute moreforms of content. They also plan to seek more partnerships with traditional media. WhileTwitter doesnt generate revenue directly from their platform partners usage of the API, the

API is an important piece of enhancing Twitter users experience on the platform and ad ds tothe completeness of Twitters advertising appeal.

Enhance Value for Advertisers - In the first 9 months of 2013, 89% of Twitters revenuecame from advertising, so increasing the value of the platform for these advertisers is centralto the companys growth strategy. They will continue to improve their targeting capabilities

by learning more about users interests. The company plans to increase their internationarevenue by launching a self-service advertising program in select international markets, asinternational revenue only represented 25% of the total revenue in the first 9 months of 2013Lastly, they plan to continue to create new and unique advertising formats including a newproduct designed to allow advertisers to embed ads into real-time video content.

23,070 27,92532,554 35,914 39,541

40,614 43,169

47,949

61,526

73,51381,571

96,788110,285

115,589

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Q1:12A Q2:12A Q3:12A Q4:12A Q1:13A Q2:13A Q3:13A

Timeline Views (000's)

United States International

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Executive Officers

Richard CostoloHe has served as the CEO since October 2010 and a member of the boardsince September 2009. He was the COO from September 2009 to October 2010. Prior tojoining Twitter, he worked as a product manager for Google. He also founded FeedBurneran RSS subscription feed provider. He graduated from the University of Michigan, AnnArbor, with a degree in Computer Science

Ali RowghaniHe has served as Twitters COO since December 2012 and was CFO fromMarch 2010 to December 2012. Prior to joining Twitter, he served in various roles at PixarAnimation Studios. He graduated from Stanford University with an MBA and a degree inInternational Relations.

Mike GuptaHe has served as the CFO since December 2012. Prior to joining Twitter, heserved in various roles at Zynga and Yahoo. He graduated from New York University withdegrees in Accounting and Economics and has an MBA from the University of Chicago.

Adam BainHe has served as the President of Global Revenue since September 2010. Priorto joining Twitter, he held various roles at News Corporation. He holds a B.A. in EnglishJournalism from Miami University.

Christopher FryHe has served as the SVP of Engineering since March 2013. Prior to thahe served as the VP of Engineering. Between June 2005 and April 2012, he served in variousroles at salesforce.com. He holds a B.A. in Cognitive Science from Vassar College and aPh.D. in Cognitive Science from the University of California, San Diego.

Vijaya GaddeShe has served as the General Counsel and Secretary since August 2013, andwas the Legal Director from July 2011 to August 2013. Prior to joining Twitter, she served invarious legal roles at Juniper Networks and Wilson Sonsini Goodrich & Rosati. Shegraduated from Cornell University with a degree in Industrial and Labor Relations and holds aJ.D. from New York University School of Law.

Non-Employee Directors

Jack DorseyMr. Dorsey is one of the founders and has served as the Chairman of the boardsince October 2008. He served as the President and CEO from May 2007 to October 2008He is also the Co-Founder and CEO of Square.

Peter Chernin Mr. Chernin has served on the board since November 2012. In 2009 hefounded Chernin Entertainment, a film production company. He also co-founded CA Mediaa company that builds and manages media, technology and entertainment businessesthroughout the Asia Pacific region. He has also held various positions at News CorporationHe holds a B.A. in English Literature from the University of California, Berkeley.

Peter Currie Mr. Currie has served as a board member since November 2010. He hasserved as the President of Currie Capital since April 2004, a private investment company.

Prior to that, he served as the CFO of McCaw Cellular Communications. He holds a B.A. inEconomics and French Literature from Williams College and an M.B.A. from StanfordUniversity.

Peter FentonMr. Fenton has served on the board since February 2009. Since September2006, he has served as a General Partner of Benchmark Capital. From October 1999 to May2006, he served as a Managing Partner at Accel Partners, a venture capital firm. He holds aB.A. in Philosophy and an M.B.A. from Stanford University.

David Rosenblatt Mr. Rosenblatt has served on the board since December 2010. SinceNovember 2011, he has served as the CEO of 1stdibs.com, an online luxury marketplaceFrom October 2008 to May 2009 he served as the President of Global Display Advertising at

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Google. He joined Google in connection with Googles acquisition of DoubleClick whereMr. Rosenblatt served from 1997. He holds a B.A. in East Asian Studies from YaleUniversity and an M.B.A. from Stanford University.

Evan WilliamsMr. Williams is one of the co-founders and has served on the board sinceMay 2007. From October 2008 to October 2010, he served as the President and CEO, fromJuly 2009 to March 2010 as the CFO, and from February 2008 to October 2008 as the ChiefProduct Officer. Since April 2011, he has served as CEO of Medium, an online publishingplatform, and Since October 2006, as CEO of The Obvious Corporation, a technologysystems company.

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Twitter Quarter ly Income Statemen t (Page 1)

Twitter Inc.Sterne Agee Model 2012A Q1:13A Q2:13A Q3:13A Q4:13E 2013E Q1:14E Q2:14E Q3:14E Q4:14E 2014E 2015

Revenue

Advertising Revenue 269,421 100,460 120,972 153,437 179,017 553,886 182,598 209,987 237,286 275,957 905,827 1,310,184

Data licensing 47,512 13,883 18,320 15,143 15,991 63,337 17,354 22,900 18,929 19,989 79,172 98,964

Total Revenue 316,933 114,343 139,292 168,580 195,008 617,223 199,951 232,887 256,214 295,946 984,998 1,409,149

Sequential Growth Advertising Revenue 1% 20% 27% 17% 2% 15% 13% 16%

Data licensing 9% 32% -17% 6% 9% 32% -17% 6%

Total Revenue 2% 22% 21% 16% 3% 16% 10% 16%

Y/Y Growth

Advertising Revenue 247% 126% 113% 123% 80% 106% 82% 74% 55% 54% 64% 45%

Data licensing 66% 41% 63% 11% 25% 33% 25% 25% 25% 25% 25% 25%

Total Revenue 198% 111% 105% 105% 74% 95% 75% 67% 52% 52% 60% 43%

Costs and Expenses

Cost of revenue 127,968 40,771 49,102 59,179 62,403 211,455 63,984 73,359 79,426 90,263 307,034 393,133

Research and development 106,382 39,149 48,491 58,127 60,453 206,220 61,985 71,031 76,864 87,304 297,184 397,370

Sales and marketing 85,205 30,374 42,709 55,472 62,403 190,958 63,984 73,359 79,426 90,263 307,034 393,133

General and administrative 48,720 15,034 15,260 15,532 15,601 61,427 17,996 20,960 23,059 26,635 88,650 140,915

Total costs and expenses 368,275 125,328 155,562 188,310 200,859 670,059 207,949 238,709 258,776 294,466 999,901 1,324,551

Loss from operations (51,342) (10,985) (16,270) (19,730) (5,850) (52,835) (7,998) (5,822) (2,562) 1,480 (14,903) 84,598

add back: Depreciation and amortization incl. ab 72,506 22,730 25,917 29,023 31,201 108,871 31,992 36,098 38,432 42,912 149,434 185,998

Adjusted EBITDA 21,164 11,745 9,647 9,293 25,351 56,036 23,994 30,275 35,870 44,392 134,531 270,596

Adjusted EBITDA Margin 6.7% 10.3% 6.9% 5.5% 13.0% 9.1% 12.0% 13.0% 14.0% 15.0% 13.7% 19.2%

Incremental EBITDA Margin 30% 21% 11% 7% 9% 12% 14% 22% 30% 19% 21% 32%

Adjusted EBITDA Growth Y/Y 1242% 524% 218% 44% 165% 104% 214% 286% 75% 140% 101%

Interest income (expense), net (2,486) (1,233) (1,513) (1,727) (1,927) (6,400) 4000 4000 4000 4000 16,000 16,000

Other income (expense), net 399 (1,529) (1,019) 818 0 (1,730) 0 0 0 0 - -

Loss before income taxes (53,429) (13,747) (18,802) (20,639) (7,777) (60,965) (3,998) (1,822) 1,438 5,480 1,097

Provision (benefit) for income taxes 754 357 777 360 500 1,994 500 500 500 500 2,000 2,000

GAAP Net Income (52,675) (13,390) (18,025) (20,279) (7,277) (58,971)

add back: amortization of acquired intangibles 18,687 3,876 3,302 3,783 3,783 14,744 3,783 14,744 3,783 14,744 37,054 103,596

add back: income tax effects related to acquisitio (220) (296) (87) - - (383) - - - - - -

Non-GAAP Net Income (34,208) (10,524) (16,364) (17,216) (4,494) (44,610) (715) 12,422 4,721 19,724 37,054 103,596

Shares Outstanding 705,674 707,438 709,207 710,980 708,325 715,435

EPS (0.00)$ 0.02$ 0.01$ 0.03$ 0.05$ 0.14$Source: Company Reports and Sterne Agee

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Twitter Quarter ly Income Statemen t (Page 2)

2012A Q1:13A Q2:13A Q3:13A Q4:13E 2013E Q1:14E Q2:14E Q3:14E Q4:14E 2014E 2015

Non-GAAP Costs as % of Sales

Cost of revenue 40% 35.66% 35.25% 35.10% 32.00% 34% 32.00% 31.50% 31.00% 30.50% 31% 28%

Research and development 34% 34.24% 34.81% 34.48% 31.00% 33% 31.00% 30.50% 30.00% 29.50% 30% 28%

Sales and marketing 27% 26.56% 30.66% 32.91% 32.00% 31% 32.00% 31.50% 31.00% 30.50% 31.2% 27.9%

General and administrative 15% 13.15% 10.96% 9.21% 8.00% 10% 9.00% 9.00% 9.00% 9.00% 9% 10%

Total costs and expenses 116% 109.61% 111.68% 111.70% 103.00% 109% 104.00% 102.50% 101.00% 99.50% 102% 94%

Depreciation & Amortization 23% 19.9% 18.6% 17.2% 16.0% 18% 16.0% 15.5% 15.0% 14.5% 15% 13%

Adj. EBITDA margin 6.7% 10% 6.9% 5.5% 13% 9% 12% 13% 14% 15% 14% 19%

Growth y/y

Advertising Revenue 247% 126% 113% 123% 80% 106% 82% 74% 55% 54% 64% 45%

Data licensing 66% 41% 63% 11% 25% 33% 25% 25% 25% 25% 25% 25%

Total Revenue 198% 111% 105% 105% 74% 95% 75% 67% 52% 52% 60% 43%

Cost of revenue 113% 49% 62% 77% 70% 65% 57% 49% 34% 45% 45% 28%

Research and development 128% 133% 109% 96% 65% 94% 58% 46% 32% 44% 44% 34%

Sales and marketing 249% 115% 121% 138% 120% 124% 111% 72% 43% 45% 61% 28%

General and administrative 15% 39% 37% 20% 13% 26% 20% 37% 48% 71% 44% 59%

Total costs and expenses 112% 81% 85% 90% 74% 82% 66% 53% 37% 47% 49% 32%

Growth Q/Q

Advertising Revenue 1% 20% 27% 17% 2% 15% 13% 16%

Data licensing 9% 32% -17% 6% 9% 32% -17% 6%

Total Revenue 2% 22% 21% 16% 3% 16% 10% 16%

Cost of revenue 11% 20% 21% 5% 3% 15% 8% 14%

Research and development 7% 24% 20% 4% 3% 15% 8% 14%

Sales and marketing 7% 41% 30% 12% 3% 15% 8% 14%

General and administrative 9% 2% 2% 0% 15% 16% 10% 16%

Total costs and expenses 8% 24% 21% 7% 4% 15% 8% 14%

Source: Company Reports & Sterne Agee

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APPENDIX SECTION

Company Description:Twitter is one of the world's largest social networks with over 230 million monthly active users. The service is free for its users, but th

company generates revenue through advertising and data licensing

IMPORTANT DISCLOSURES:

Regulation Analyst Certification:

I, Arvind Bhatia and Brett Strauser, hereby certify the views expressed in this research report accurately reflect my personal views abouthe subject security(ies) or issuer(s). I further certify that no part of my compensation was, is, or will be, directly or indirectly, related

to the specific recommendations or views expressed by me in this report.

Price Target Risks & Related Risk Factors:

Investment risks associated with the achievement of the price target include, but are not limited to, a company's failure to achieve Sterne

Agee & Leach, Inc., earnings and revenue estimates; unforeseen macroeconomic and/or industry events that adversely affect demand for a

company's products or services; product obsolescence; changes in investor sentiment regarding the specific company or industry; intense

and rapidly changing competitive pressures; the continuing development of industry standards; the company's ability to recruit and retain

competent personnel; and adverse market conditions. For a complete discussion of the risk factors that could affect the market price of

a company's shares, refer to the most recent Form 10-Q or 10-K that a company has filed with the Securities Exchange Commission.

Company Specific Risks:

Twitter is still not profitable on an EPS basis. It faces competition from other social media networks that have greater resources andlonger operating history.

Valuation Methodology:

Methodology for assigning ratings and target prices includes qualitative and quantitative factors including an assessment of industry

size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition; and

expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry

or company-specific occurrences. Sterne, Agee & Leach, Inc., analysts base valuations on a combination of forward looking earnings

multiples, price-to-revenue multiples, and enterprise-value-to-revenue ratios. Sterne, Agee & Leach, Inc., believes this accurately reflect

the strong absolute value of earnings, the strong earnings growth rate, the inherent profitability, and adjusted balance sheet factors.

Additional company-specific valuation methodology is available through Sterne, Agee & Leach, Inc.

Definition of Investment Ratings:

BUY:We expect this stock to outperform the industry over the next 12 months.

NEUTRAL:We expect this stock to perform in line with the industry over the next 12 months.

UNDERPERFORM:We expect this stock to underperform the industry over the next 12 months.

RESTRICTED:Restricted list requirements preclude comment.

Ratings Distribution:

IB Serv./ Past 12Mos.

Rating Category Count Percent Count Percent

Buy 230 47.82% 33 14.35%Neutral 232 48.23% 13 5.60%Underperform 19 3.95% 1 5.26%

ADDITIONAL INFORMATION AVAILABLE UPON REQUEST:Contact Robert Hoehn at 1-212-338-4731.

Other Disclosures:

Opinions expressed are our present opinions only. This material is based upon information that we consider reliable, but we do no

represent that it is accurate or complete, and it should not be relied upon as such. Sterne, Agee & Leach, Inc., its affiliates, or one o

more of its officers, employees, or consultants may, at times, have long or short or options positions in the securities mentioned herei

and may act as principal or agent to buy or sell such securities.

Copyright 2013 Sterne, Agee & Leach, Inc. All Rights Reserved.

Appendix Section, Page

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To receive price charts or other disclosures on the companies mentioned in this report, please visit our website at https:/

sterneagee.bluematrix.com/sellside/Disclosures.actionor contact Sterne, Agee & Leach, Inc. toll-free at (800) 240-1438 or (205949-3689.

Appendix Section, Page I

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Founded in 1901, Sterne Agee has been providing investors like you with high-quality investment opportunities for over a century. During theearly years, our founders prominently established themselves in the financial securities industry in the southeastern United States. Today, we

have expanded to serve all regions of the country. Sterne, Agee is headquartered in Birmingham, Alabama with offices in 22 states. Sterne

Agee is one of the largest independent firms in the country. Sterne, Agee & Leach, Inc. is a division of Sterne Agee Group, Inc., which also

includes The Trust Company of Sterne, Agee & Leach, Inc.; Sterne Agee Asset Management, Inc.; Sterne Agee Clearing, Inc.; and Sterne Agee

Financial Services, Inc.www.sterneagee.com

EQUITY CAPITAL MARKETS

Ryan Medo Managing Dir., Eq. Cap. Mkts. (205) 949-3623

INSTITUTIONAL SALES

William Jump Director of Institutional Sales (404) 814-3960Jon Schenk Assoc. Director of Inst. Sales (212) 763-8221

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JT Cacciabaudo Head of Trading (212) 763-82

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Robert Hoehn Director of Research (212) 338-4731

CHIEF ECONOMIST

Lindsey M. Piegza Mng. Dir. (312) 924-0607

CONSUMER

Broadli nes / Health & Wellness RetailingCharles Grom, CFA Mng. Dir. (646) 376-5373

Renato Basanta, CFA VP, Analyst (646) 376-5317

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Ben Shamsian Analyst (212) 338-4721

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(615) 760-1466Kenneth James VP, Sr. Analyst (615) 760-1474

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INDUSTRIALS

Aerospace & DefensePeter Arment Mng. Dir. (646) 376-53

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Data Networking and StorageAlex Kurtz Mng. Dir (415) 402-6

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Interactive Entertainment / InternetArvind Bhatia, CFA Mng. Dir. (214) 702-40

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Sal Vitale VP, Sr. Analyst (212) 338-47

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