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 consistently increased throughout the period, while 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 significantly from 2017 to 2021, indicating a widening gap between returns generated and the cost of capital. The largest negative economic profit occurred in 2021, reaching negative US$1,241,051 thousand.

NOPAT and Economic Profit Relationship

The fluctuations in NOPAT directly correlate with the changes in economic profit. The positive NOPAT values in 2018 and 2019 resulted in less negative economic profit figures compared to the loss-making years of 2017, 2020, and 2021. The substantial decline in NOPAT in 2021 contributed to the largest negative economic profit for the period.

Cost of Capital and Invested Capital

The cost of capital remained relatively consistent, fluctuating between 11.46% and 12.61% over the five years. Invested capital showed a consistent upward trend, increasing from US$4,627,898 thousand in 2017 to US$7,449,784 thousand in 2021. This increasing invested capital, coupled with largely negative NOPAT, exacerbated the negative economic profit.

In summary, the organization consistently failed to generate returns exceeding its cost of capital during the period. The increasing invested capital, combined with volatile and ultimately declining NOPAT, resulted in a worsening economic profit position, particularly pronounced in the final year of the analysis.

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 economic spread ratio demonstrates a consistently negative trend over the five-year period. This indicates that the company’s returns on invested capital are consistently below its cost of capital. The magnitude of the negative spread has increased over time, suggesting a worsening of this performance.

Economic Spread Ratio

The economic spread ratio began at -14.16% in 2017. It improved to -3.65% in 2018, representing a relative, though still negative, improvement. However, this improvement was short-lived, as the ratio deteriorated to -5.27% in 2019 and continued to decline, reaching -12.32% in 2020. The most significant decrease occurred between 2020 and 2021, with the ratio falling to -16.66%. This signifies a substantial widening of the gap between the company’s returns and its cost of capital.

The negative economic spread ratio is directly correlated with the negative economic profit reported each year. As the economic spread ratio becomes more negative, the absolute value of the economic profit also increases, indicating a larger destruction of shareholder value. The increasing invested capital, coupled with the declining economic spread, suggests that the company is deploying more capital into ventures that are generating returns below the required rate.

Economic Profit & Invested Capital Relationship

While invested capital increased from US$4,627,898 thousand in 2017 to US$7,449,784 thousand in 2021, economic profit remained consistently negative, and its magnitude grew substantially. This suggests that the increased investment did not translate into improved profitability relative to the cost of that capital. The trend implies that the company’s investment decisions, or the operational efficiency of those investments, are not generating sufficient returns to cover the cost of funding them.

The consistent negative economic spread ratio and increasing economic profit losses warrant further investigation into the underlying drivers of profitability and capital allocation efficiency. A deeper analysis of the cost of capital and the returns generated by specific investments is recommended.

The economic profit margin exhibited a consistent decline over the five-year period. While economic profit fluctuated in absolute terms, the margin consistently decreased, indicating a worsening trend in value creation relative to revenue.

Economic Profit Margin

The economic profit margin began at -26.89% in 2017. This represents a substantial initial loss in economic profit relative to adjusted revenue. The margin improved to -6.20% in 2018, suggesting a reduction in the magnitude of the economic loss, though still negative. However, this improvement was short-lived.

From 2018 through 2021, the economic profit margin experienced a steady deterioration. It decreased to -7.98% in 2019, then to -19.83% in 2020, and finally reached -24.36% in 2021. This indicates an accelerating decline in the company’s ability to generate returns exceeding its cost of capital, as measured by this metric.

The trend in adjusted revenue shows consistent growth throughout the period, increasing from US$2,437,464 thousand in 2017 to US$5,094,705 thousand in 2021. Despite this revenue growth, the increasing negative economic profit margin suggests that the cost of capital, or the required rate of return, is growing at a faster rate than the returns generated from revenue.

The absolute value of economic profit also increased in magnitude over the period, moving from a loss of -US$655,525 thousand in 2017 to a loss of -US$1,241,051 thousand in 2021. This reinforces the conclusion that the company’s economic performance is weakening, even as its revenue expands.