Twitter's cash puts it in a league of its own

Jack Dorsey, CEO of Twitter.
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Jack Dorsey, CEO of Twitter.

Twitter can keep losing money for more than 400 years, and that's centuries more than other companies can say.

The market didn't look kindly on the mass exodus of Twitter executives this week, but as S&P Capital IQ pointed out in a research note, at least the company still has tons of cash. At its current burn rate, CEO Jack Dorsey has 412 years to turn the company around before it runs out of cash.

The Big Crunch wondered how that timeline compared to other companies traded on the New York Stock Exchange and Nasdaq — after all, the median company tends to hold nearly twice as much cash on its books than a decade ago, and some companies have tens of billions in their stockpiles.

It turns out that even if you compare Twitter to other companies burning money at the same rate or faster, Twitter's $3.5 billion in cash gives it centuries more time than anyone else. The only companies on either exchange (out of those with data available) that come even close are a few energy companies and a commodities company.

The industries with the largest stockpiles of cash are automotive, beverages, energy, tobacco and electronics companies, according to our analysis.

About 40 companies are in the "miscellaneous" category with Twitter that are also losing money at the same level or worse. Twitter's $3.5 billion puts it at the very top of the stack, under only Yahoo's $5.9 billion and above Netflix at $2.3 billion. Yet Twitter is losing cash more than a hundred times slower than those companies.

The median return for the last 12 months for all companies losing cash at that level was 22 percent. Yet those companies only have a median of a little over a year's worth of cash. That means that while Twitter could hypothetically stay in a holding pattern for centuries before folding, the stock market has punished it with a much steeper price cut (nearly half of the stock's value in the last 12 months).

"When a stock declines like this it's offering the ability for someone to purchase it at a discount." -Scott Kessler, S&P Capital IQ

While the sudden departure of multiple executives is concerning, the negative sentiment surrounding Twitter is out of hand considering the company's other fundamentals, said Scott Kessler, deputy global director of equity research at S&P Capital IQ and SNL. The 412 years calculation performed by CNBC is similar to the calculations used to evaluate Internet companies in the early 2000s. But it's meant to point out the company's strong capitalization and balance sheet, which Kessler said put the company in a stronger position than its stock value seems to indicate.

"I don't think at this point anyone is sitting around and wondering whether or not Twitter is going to be able to sustain its operations," said Kessler. "But they have an opportunity to use some of that cash to expand and enhance their assets and platform and features and functionality to make a more compelling company and offering."

Part of the blame for the negative sentiment is on the company itself, said Kessler. Twitter has encouraged analysts and investors to evaluate its success based on increasing monthly active users, and then failed to deliver much growth in that metric in recent quarters. Other metrics, like revenue growth, paint a more positive picture of the company. S&P Capital sees the company's advertising segment fueling revenue growth of 43 percent in 2016.

Twitter could improve public perception by developing more effective metrics and by showing investors how it plans to develop its product at the Feb. 10 earnings call. In the meantime, the company has become a much more appealing acquisition target for other companies and is likely selling below its true value, said Kessler.

"Unless there is a structural impediment to a rebound, when a stock declines like this it's offering the ability for someone to purchase it at a discount," he said.

CORRECTION: The 412 years calculation was made by CNBC, and other news outlets, not by analyst Scott Kessler.