Twitter Inc has received junk rating for its bonds from Standard & Poors as the company faces investor pressure due to slowing user growth and management turnover.
The company and its $1.8 billion in convertible notes were rated BB-, three levels below investment grade, by the credit rating agency. S&P also said Twitters financial risk was “significant” and its outlook was “stable”.
“The company will need to make continual, sizable investments in its products and services to ensure growth and innovation, as well as maintain its relevance with its users” Andy Liu, an S&P analyst wrote in the note.
Mr. Liu also mentioned that the rating took into consideration a “healthy growth in monthly active users and revenues”, despite analysts projection of lower user growth.
S&P, which usually is called and paid by lenders to assign a rating, said the evaluation was unsolicited.
The San Francisco-based company stated in its financial report released on October 27th a 23% year-to-year increase to 284 million users for the quarter, down from the 24% yearly gain in the previous three months and 5% up on quarterly basis.
“The stable outlook reflects our expectation that Twitter will continue to experience very strong growth and not encounter a significant increase in competitive pressure” Mr. Liu said.
S&P said it could raise Twitters rating, if the company proved better profitability and found new sources of revenue through international expansion and new product releases. The agency also mentioned that it could further decrease the messaging platforms rating, should Twitter show a significant slowdown in revenue growth or make a large purchase that would deplete its cash.
Twitters new CFO and former Goldman Sachs banker, Anthony Noto, said that the company could reach $14 billion in annual sales in the next decade, ten times higher than the $1.4 billion estimate for this year. Mr. Noto also said the company aims to become one of the “top revenue generating internet companies in the world”.
Twitter Inc lost 5.88% on Thursday and closed at $40.04 in New York, marking a one-year decrease of 6.01%. The company is valued at $25.41 billion. According to the Financial Times, the 34 analysts offering 12-month price targets for Twitter Inc have a median target of $51.99, with a high estimate of $64.00 and a low estimate of $28.00. The median estimate represents a 29.83% increase from the last price of $40.04
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