Global ratings agency Standard & Poor’s knows how to defame global brands and even nations and its rating assigned for Twitter’s recent bond offering was just a “junk”, which means virtually there is no value for the bonds and no guarantee of Twitter’s ability to repay its debts.
The S&P rating given on Thursdy was “BB-” and a “3” recovery rating on the company’s $1.8 billion in convertible debt issued in September 2014, which means recovery of at least 70% of the principal amount in the event of default by Twitter is not sure. Soon, Twitter shares in the market plummeted by 5.2% to $40.33.
S&P rating is given to a company, which is relatively unstable with no profitable business plan in the near-term, “but faces major ongoing uncertainties to adverse business, financial and economic conditions.”
Further, S&P said it does not expect Twitter to pursue any buybacks and dividends.In fact, Twitter is recently on an expansion drive with its user base and revenue, but S&P believes the social media firm can post positive cash flows only after 2016.
In the last quarter, Twitter reported a surge in sales, but showed no sustainable profitability with a net loss of $175.5 million in the quarter. In all, Twitter stock dropped by 37% since the beginning of the year.
Twitter has about 284 million users around the world, growing by 25% over the last year. But compared to Facebook, it is nowhere near high growth model. Facebook has 864 million active users, with more leverage among the advertisers and reported a 20% growth.
Twitter had $3.6 billion in cash as of September end, including the $1.8 billion from issuing the junked bonds.
To counter the rating woes, Twitter is planning an “instant timeline,” which would ask new users to answer about about their interests so that Twitter could offer personalized suggestions of accounts to follow.
Another feature titled “while you were away” is likely to summarize the key tweets missed by users while they were logged off.
Next move by Twitter is to invest heavily in video content similar to Instagram feature that would allow users to upload, edit and share videos within Twitter’s native app.