Twitter Inc. (NYSE:TWTR)

The period under review demonstrates significant fluctuations in financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) exhibited substantial volatility, moving from a loss in 2017 to a peak in 2018, followed by declines in subsequent years, culminating in a substantial loss in 2021. Invested capital generally increased throughout the period, with the most significant rise occurring between 2020 and 2021. The cost of capital remained relatively stable, with a slight decrease observed in 2021.

Economic Profit Trend

Economic profit consistently remained negative throughout the analyzed timeframe. The magnitude of the negative economic profit increased over the years, indicating a widening gap between returns generated and the cost of capital. The largest negative economic profit was recorded in 2021, suggesting a significant underperformance relative to the capital employed.

NOPAT and Economic Profit Relationship

The fluctuations in NOPAT directly correlate with the changes in economic profit. The positive NOPAT in 2018 resulted in the least negative economic profit for the period, although still negative. Conversely, the substantial losses in NOPAT in 2017 and 2021 led to the largest negative economic profit figures. This indicates that the ability to generate operating profit is a primary driver of economic profit.

Invested Capital and Economic Profit

While invested capital increased over the period, the economic profit deteriorated. This suggests that increases in capital employed did not translate into commensurate increases in returns. The growing invested capital base, coupled with inconsistent NOPAT, contributed to the widening negative economic profit.

Cost of Capital Impact

The cost of capital remained relatively consistent, with a slight decrease in 2021. The decrease in the cost of capital in 2021 did not offset the substantial decline in NOPAT, and the negative economic profit continued to worsen. This suggests that the cost of capital, while a factor, was not the primary driver of the observed economic underperformance.

In summary, the analysis reveals a consistent inability to generate returns exceeding the cost of capital. The increasing invested capital, combined with volatile NOPAT, resulted in a progressively worsening economic profit position. The company’s performance suggests a need to improve operational efficiency and/or capital allocation strategies.

The financial data reveals significant fluctuations in net income and net operating profit after taxes (NOPAT) over the five-year period.

Net Income (Loss)

Initially, there was a substantial net loss of approximately -108 million US dollars at the end of 2017. This was followed by a strong recovery in 2018, with net income increasing sharply to nearly 1.2 billion US dollars. The positive trend continued into 2019, with net income reaching around 1.47 billion US dollars. However, the company experienced a pronounced reversal in 2020, recording a significant net loss of approximately -1.14 billion US dollars. This negative result persisted into 2021, albeit at a reduced loss of about -221 million US dollars. Overall, net income demonstrates high volatility, with a peak in 2019 and losses resurging in the last two years of the period.

Net Operating Profit After Taxes (NOPAT)

NOPAT follows a similar pattern to net income, starting with a negative value of around -74 million US dollars in 2017. It then sharply increased to 443 million US dollars in 2018, followed by a slight decline to 382 million US dollars in 2019. A notable decline occurred in 2020, with NOPAT dropping to a marginal positive figure of about 17.5 million US dollars, indicating a substantial reduction in operational profitability. In 2021, NOPAT turned negative again, reaching approximately -388 million US dollars, which reflects a deterioration in operational efficiency or increased operating costs relative to revenue.

In summary, both profitability measures indicate a period of growth and profitability in the middle years (2018–2019), contrasting sharply with losses and reduced operating performance in the earlier and later years. This suggests the company faced considerable challenges affecting its bottom line and operations towards the end of the examined timeframe.

Provision (benefit) for income taxes

The provision (benefit) for income taxes displays significant fluctuations over the analyzed periods. Initially, in 2017, the company reported a positive provision, indicating tax expenses amounting to approximately 12.6 million US dollars. Subsequently, in 2018 and 2019, the figures reflect substantial negative values, with benefits representing tax credits or reductions exceeding 782 million and 1.07 billion US dollars respectively. This shift suggests large tax benefits or loss carrybacks during these years. However, in 2020, the provision reverted sharply to a positive expense exceeding 1.08 billion US dollars, indicating a considerable tax charge. Lastly, in 2021, the provision again turned negative at around 190 million US dollars, signifying a tax benefit. This volatililty suggests that the company experienced considerable variability in taxable income, tax planning outcomes, or tax accounting treatments across the years.

Cash operating taxes

Cash operating taxes have generally remained within a more stable range compared to the provision for income taxes. The amounts paid in cash taxes fluctuated moderately between approximately 27.6 million and 51.6 million US dollars throughout the periods. The lowest cash taxes occurred in 2018 at roughly 27.6 million US dollars, while the highest payment was recorded in 2021 at approximately 51.6 million US dollars. The intermediate years show amounts oscillating around 41.8 million to 49.7 million US dollars. The overall trend suggests relatively consistent cash outflows for taxes despite the considerable volatility in the tax provision figures, which may indicate timing differences, deferred tax effects, or non-cash tax items affecting the taxable income reconciliation.

The financial data reveals several key trends in the company's capital structure and financial positioning over the five-year period ending in 2021.

Total Reported Debt & Leases

This liability measure shows a general upward trend throughout the period. Starting at approximately 2.34 billion USD in 2017, the amount increased significantly to around 3.49 billion USD in 2018. A slight decrease to roughly 3.29 billion USD is observed in 2019, but the figure rises sharply again in the two subsequent years, reaching approximately 4.48 billion USD in 2020 and peaking at about 5.55 billion USD by the end of 2021. This trend indicates a growing reliance on debt and lease obligations to finance operations or investments.

Stockholders’ Equity

Equity shows overall growth from 2017 to 2019, moving from around 5.05 billion USD to above 8.7 billion USD. However, this is followed by a decline in the two subsequent years, falling to roughly 7.97 billion USD in 2020 and further to about 7.31 billion USD in 2021. This decrease suggests potential distribution of earnings (such as dividends or share buybacks), losses, or other equity-reducing events during these years.

Invested Capital

Invested capital displays a solid overall upward trajectory. It starts at approximately 4.63 billion USD in 2017 and steadily rises each year, reaching close to 7.45 billion USD by 2021. The progression is consistent, with the most notable increases occurring from 2019 onward. This upward movement indicates an expanding base of capital utilized to support the company’s operations and growth initiatives.

In summary, the company has increasingly utilized debt and leases as part of its capital structure, while stockholders' equity experienced growth through 2019 followed by reductions in subsequent years. The consistent increase in invested capital underscores an ongoing expansion in financial resources employed by the company, reflecting potential investments in assets or operational capabilities. The interplay between rising debt and declining equity toward the end of the period may warrant further analysis regarding financial risk and capital cost optimization.

The financial performance, as indicated by economic value added metrics, demonstrates a consistent decline in value creation over the observed period. Economic profit consistently registers as negative, and the economic spread ratio reflects a worsening trend in profitability relative to invested capital.

Economic Profit

Economic profit exhibits a pattern of increasing losses from 2017 to 2021. Beginning with a loss of US$655.505 thousand in 2017, the losses decreased to US$189.424 thousand in 2018, before increasing again to US$278.490 thousand in 2019. The losses then accelerated significantly, reaching US$735.555 thousand in 2020 and culminating in a substantial loss of US$1,241.022 thousand in 2021. This indicates a growing inability to generate returns exceeding the cost of capital.

Invested Capital

Invested capital generally increased throughout the period. From US$4,627.898 thousand in 2017, it rose to US$5,185.025 thousand in 2018 and US$5,287.225 thousand in 2019. Further increases were observed in 2020 (US$5,970.409 thousand) and 2021 (US$7,449.784 thousand). The growth in invested capital, coupled with declining economic profit, suggests diminishing returns on capital employed.

Economic Spread Ratio

The economic spread ratio, representing the percentage return on invested capital exceeding the cost of capital, consistently shows negative values. The ratio began at -14.16% in 2017, improved slightly to -3.65% in 2018, but then deteriorated steadily. It reached -5.27% in 2019, -12.32% in 2020, and further declined to -16.66% in 2021. This downward trend signifies a widening gap between the cost of capital and the returns generated by the invested capital, indicating increasing destruction of shareholder value.

In summary, the observed trends suggest a weakening financial position. While invested capital has been increasing, the company has consistently failed to generate sufficient economic profit to cover its cost of capital, resulting in a progressively worsening economic spread ratio.

The economic profit margin exhibited a consistent decline over the five-year period. While economic profit fluctuated in absolute terms, the trend in economic profit margin indicates a worsening of profitability from an economic value perspective.

Economic Profit Margin

The economic profit margin began at -26.89% in 2017. This represents a substantial economic loss relative to adjusted revenue. A notable improvement was observed in 2018, with the margin increasing to -6.20%, suggesting a reduction in the magnitude of the economic loss. However, this improvement was short-lived. The margin deteriorated again in 2019 to -7.98%, and then experienced a more pronounced decline in 2020, reaching -19.83%. This downward trend continued into 2021, with the economic profit margin reaching -24.36%, the lowest value observed during the analyzed period.

The increasing negative values of the economic profit margin suggest that the company’s returns are consistently failing to cover the cost of capital. The magnitude of the decline accelerated in the later years of the period, indicating a growing disparity between economic profit and adjusted revenue. The relationship between adjusted revenue and economic profit suggests that while revenue increased over the period, the cost of generating that revenue, relative to the capital employed, also increased at a faster rate.

Relationship between Economic Profit and Adjusted Revenue

Adjusted revenue increased from US$2,437,464 thousand in 2017 to US$5,094,705 thousand in 2021. Despite this growth in revenue, economic profit remained negative throughout the period and increased in absolute value, moving from a loss of US$-655,505 thousand in 2017 to a loss of US$-1,241,022 thousand in 2021. This indicates that the growth in revenue was insufficient to offset the increasing economic costs, resulting in a worsening economic profit margin.

The consistent negative economic profit margin warrants further investigation into the underlying drivers of cost of capital and operational efficiency. The accelerating decline in the margin, particularly in 2020 and 2021, suggests a potential need for strategic adjustments to improve economic profitability.