Twitter’s (TWTR) stock is crashing. Management is in upheaval. But the micro blogging site has one giant thing going for it — $3.5 billion in cash — which buys it lots of time.
Shares of Twitter are down 65 cents, or 3.6%, to $17.19 Monday after CEO Jack Dorsey said four top executives were leaving the company. The stock is now down 68% from its highest point over the past 52-weeks and off 55% over the past year. The stock is indicating a serious situation for the company.
Investors seem to be preparing for the worst — but the company’s financial standing indicates it has plenty of time to get things right: 412 years to be exact. Twitter — like many of the most valuable recent technology initial public offerings — has a giant advantage: Cash. And lots of it. The company ended its most recently reported quarter with $3.5 billion in cash and investments, says S&P Capital IQ. If the company only burns $8.5 million a year in free cash — as it did the past 12 months — that’s enough cash to last 412 years.
That’s a long time for Dorsey to figure things out. It is important to note that Twitter does have $1.4 billion in long-term debt. But the servicing of that debt is already included in the company’s free cash flow. Debt could cause issues, though, if the company’s interest rate is driven higher when if it looks to refinance in the future.
Twitter is the best example of recent technology and consumer electronics companies with the deep pockets to endure a serious market disruption. Twitter is one of the 39 cash-burning tech and consumer electronics companies that went public the past five years that also have two years or more of cash and investments based on their free cash flow over the past 12 months. Another 65 tech companies that went public the past five years generate free cash flow. There were 113 tech and consumer electronics companies that sold shares to the public over the past five years.
The financial situation shows the interesting disconnect between disastrous stock prices — and the relative strength of the company’s cash reserves. Online gaming company Zynga (ZNGA) is another example. Shares of Zynga are down 75% over the past five years — as investors lament the company’s uneven growth and perpetual losses. The company has burned $52 million over the past 12 months. But here’s the bright spot — the company ended its most recently reported period with nearly $1.1 billion in cash and investments. That would last 20 years at the current burn rate. That gives the company lots of time to find the next FarmVille.
Certainly, some of these companies could increase their burn rates which would reduce their dry powder. Some, too, could use up some of the cash to make acquisition, buy back stock or pay dividends. But with their cash reserves so full — you can see why many aren’t breaking a sweat under their hoodies.
RECENT CASH-BURNING TECH AND CONSUMER ELECTRONICS IPOS WITH LARGEST CASH RESERVES RELATIVE TO FREE CASH FLOW *
Company, Symbol, Years of cash left, % ch. from hi (stock)
Twitter, TWTR, 412, -68%
Quotient Techology, QUOT, 264, -66%
FireEye, FEYE, 52, -73%
M/A-Com, MTSI, 36, -8.4%
Rapid7, RPD, 33, -50%
Source: S&P Capital IQ, USA TODAY
* Based on free cash flow
** IPOs over the past five years in tech and consumer electronics
Written by Mat Krantz of USA Today
(Source: USA Today)