#Twitter Is About to Join the HY Party
Updated: Jul 19, 2020
Twitter is planning to issue a HY bond this week, led by JP Morgan. I believe this is probably good value should it be issued at 4-1/2% or more (current price talk best I can tell), based on the company’s credit metrics and market position, and the fact that the BofAML BB HY index is yielding 4.08% (US$’s).
3rd quarter results were disappointing due principally to more employees (hiring) and headwinds in advertising, but the company maintains a strong market position and net liquidity pro forma that can help it navigate some temporary interruptions in its growth.
I have never been a big supporter of debt in technology companies because the winds can shift quickly and unexpectedly, but companies like Twitter have moved beyond being simply technology companies, and as a result, have a different risk profile. I suppose the question is: would one prefer the current return on this sort of bond, or take more risk and buy the beaten-down equity, which closed yesterday at $29.86/share (current P/E of 14.6x), well off its 52-week high of $45.86. 3Q2019 results missed expectations but revenues and customers both increased, not a total disaster. Do you want the yield (and downside protection – hopefully) or some potential upside but without a current return? That’s the question!