Twitter Inc (TWTR) Finds Itself in Doldrums Post-S&P Rating

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After a wonderful Wednesday, Twitter Inc (NYSE:TWTR) was back to its woeful ways on Thursday, 13th October, 2014, when S&P rated it at BB-, a level which is three notches below its previous rank and is regarded as ‘junk’ in the corporate world. In a move which was described by the rating entity as being unsolicited, S&P explained its action as follows through Andy Liu, one of its analysts –

“The unsolicited ‘BB-‘ corporate credit rating incorporates our assumption of healthy growth in monthly active users and revenues, the possibility of positive discretionary cash flow in 2016, and ongoing minimal debt leverage.”

The rating being ‘unsolicited’ points to the fact that it had been based solely on information garnered from public sources and was a result of S&P’s initiative with/without any cooperation from the company. S&P spokesperson went on to say that while Twitter Inc (NYSE:TWTR) is likely to experience an aggressive rate of growth over the next few years, its discretionary cash flow will remain largely negative. To offset this, this global micro-blogging platform will need to expand on an international scale, register revenue growth and maintain a meaningful cash balance.

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CNBC covered the topic wherein shares of the company had plunged and were down by almost 6%, trading at around $40 levels towards the end of trading session, a significant decline from the 7% rise the previous day. As far as Twitter Inc (NYSE:TWTR)’s projection of growth and revenue were concerned, one analyst termed it as being ‘wild’ and another named Arvind Bhatia from Sterne Agee summed it up as follows –

“In a nutshell, management’s message was that Twitter is a unique, larger-than-it-looks platform that is currently significantly under-monetized.”

That said, S&P has not completely shut the door and has offered consolation through the following statement –

“We could raise the rating if Twitter broadens its revenue sources through international expansion and new product launches, maintains its market position, continues to improve its profitability, and achieves positive and sustained discretionary cash flow in excess of $100 million in 2016,”

So from now onward, Twitter Inc (NYSE:TWTR) management has an objective on which it needs to focus seriously if the company is to regain its lost position.
This article has been written by Vinita Basu.

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