Twitter gets @junk rating from S&P on financial outlook
Twitter Inc., which has been under pressure because of slowing user growth and management turnover, was given a speculative-grade credit by Standard & Poor's.
The company and its $1.8 billion of convertible notes were given a rating of BB-, three levels below investment-grade, according to a statement yesterday from the credit-ranking company. S&P also said Twitter's financial risk was "significant." Shares continued to decline after the statement, falling 5.9 percent to $40.04 at the close in New York yesterday.
Twitter's potential for growth remains strong and leads to a stable outlook, S&P said. S&P, which usually gets paid by borrowers to assign a rating, said this assessment was unsolicited.
"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," S&P analysts led by Andy Liu wrote in the note.
The San Francisco-based company has been under pressure because of its slowing user growth and management turnover. Twitter's monthly active user count rose 23 percent to 284 million in the third quarter, down from 24 percent growth the prior quarter.
Costolo's Defense
Twitter Chief Executive Officer Dick Costolo defended the company's prospects on Nov. 12 at its first analyst day, saying that about 500 million people visit its website each month without logging in. Anthony Noto, who was named chief financial officer in July, highlighted charts showing revenue reaching $14 billion in 10 years while emphasizing that wasn't a forecast.
"S&P's own release says 'the stable outlook reflects our expectation that Twitter will continue to experience very strong growth and not encounter a significant increase in competitive pressure,'" Twitter spokesman Jim Prosser wrote in an e-mail.
The company sold convertible bonds in two $900 million pieces in September, according to data compiled by Bloomberg. Investors bought up the notes at lower coupons than the average paid by Internet companies on convertible debt since 2009, Bloomberg data show.