Company Report

October 28, 2013

Twitter, Inc.
TWTR - Initiating Coverage Ahead of the IPO next week
Our Call Our valuation work suggests in the base case TWTR shares could be worth $25 to $32 in the next 12 to 24 months, respectively. In the upside case, shares could be worth $33 to $48 while in the downside case, shares could be worth $13 to $15 during the same period. As such, if the IPO is priced in the $17 to $20 range, shares would appear attractive from a risk-reward standpoint. We are launching coverage of the company but not establishing a rating or price target yet, pending the completion of the IPO next week. A leading social network. Twitter is one of the worlds leading social networks (232 million Monthly Active Users, including 53 million in the U.S.), allowing users to create, distribute, and discover content in real time on the web and mobile devices. Mobile is the primary driver for Twitter, as 76% of the monthly active users (MAUs) in the most recent quarter accessed Twitter via mobile. Additionally, over 70% of the advertising revenue was from mobile in the most recent quarter. TWTRs international user base represents 77% of the total, yet only 25% of the revenue is international, representing a significant growth opportunity long-term. Value Proposition for Advertisers and Platform Partners. Twitters scale and deeply engaged user base create valuable opportunities for advertisers to leverage the platform. Advertisers can communicate directly with their followers for free, or they can purchase Twitters advertising services to reach a broader audience. Twitters platform partners include publishers, media, outlets, and developers, who have integrated with Twitter through an application programming interface (API), which allows them to seamlessly leverage Twitter as a complementary distribution channel for their content. Twitter plans to continue to integrate more content into their API to allow platform partners to distribute more forms of content. Data Licensing. While advertising is the primary revenue driver, TWTR derived 11% of its revenue from Data Licensing. Twitter sells data licenses, providing data partners with detailed historical and real-time analytics regarding users interactions with the platform. Data partners pay a monthly licensing fee to use the data, over the period in which the data is made available to them (typically 2 years). Twitters top five data partners accounted for roughly 73% of its data licensing revenue in the first 9 months of 2013. IPO Details. Twitter plans to list on the NYSE under the symbol TWTR. Based on most recent filings, the company plans to issue 70 million shares (80.5 million shares including overallotment). Assuming an IPO pricing of $17-$20, the company could raise $1.2B (70M shares x $17 per share) to $1.6B (80.5M shares x $20 per share) before fees.
Price Performance FYE Dec
EBITDA (M) Q1 (Mar) Q2 (Jun) Q3 (Sept) Q4 (Dec) FY EBITDA (M)

Interactive Entertainment / Internet

Arvind Bhatia, CFA (214) 702-4001
abhatia@sterneagee.com

Brett Strauser (214) 702-4009

bstrauser@sterneagee.com

Company Data
Market Capitalization (M) Avg. Daily Vol. (000) Assets (M) NA NA $2,153.0

Revenue ($M) 2012A 2013E 2014E

FY 316.9 617.2 985.0

2012A (Curr)
(0.9) 1.5 2.9 17.6 21.2

2013E (Curr)
11.7A 9,647.0A 9.3A 25.4 56.0

2014E (Curr)
24.0 30.3 35.9 44.4 134.5
Chart Data Not Available

Source: FactSet

Important Disclosures regarding Price Target Risks, Valuation Methodology, Regulation Analyst Certification, Investment Banking, Ratings Definitions, and potential conflicts of interest begin on Page I of the Appendix Section. 800 Shades Creek ParkwaySuite 700Birmingham, AL 35209205-949-3500
Sterne, Agee & Leach Inc. is Member NYSE, FINRA, SIPC

October 28, 2013

TABLE OF CONTENTS EXECUTIVE SUMMARY...3 VALUATION FRAMEWORK.......................4 BASE CASE...4 UPSIDE CASE..5 DOWNSIDE CASE...6 LONG TERM MARGINS....8 COMPANY BACKGROUND.8 ADVERTISING VALUE OF THE PLATFORM ..9 MOPUB ACQUISITION.9 PROMOTED PRODUCTS..9 DATA LICENSING..9 MOBILE9 INTERNATIONAL..9 ADVERTISING INDUSTRY TRENDS...10 GROWTH STRATEGY.11 EXECUTIVE OFFICERS AND BOARD MEMBERS...13 MODEL15

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EXECUTIVE SUMMARY A leading social network. Twitter is one of the worlds leading social networks (232 million Monthly Active Users, including 53 million in the U.S.), allowing users to create, distribute, and discover content in real time on the web and mobile devices. Value Proposition for Advertisers. Twitters scale and deeply engaged user base create valuable opportunities for advertisers to leverage the platform. Advertisers can communicate directly with their followers for free, or they can purchase Twitters advertising services to reach a broader audience. Value Proposition for Platform Partners. Twitters platform partners include publishers, media, outlets, and developers, who have integrated with Twitter through an API which allows them to seamlessly leverage twitter as a complementary distribution channel for their content. Twitter plans to continue to integrate more content into their API to allow platform partners to distribute more forms of content. Data Licensing. Twitter sells data licenses, providing data partners with detailed historical and real-time analytics regarding users interactions with the platform. In the first 9 months of 2013, 11% of Twitters revenue came from Data Licensing. Data partners pay a monthly licensing fee to use the data, over the period in which the data is made available to them (typically 2 years). Mobile. Mobile is the primary driver for Twitter, as 76% of the MAUs in the most recent quarter accessed Twitter via mobile. Additionally, over 70% of the advertising revenue was from mobile in the most recent quarter. International. International revenue for the 9 months ended Sept. 30 was 25% of overall revenue (up from 17% of revenue in the year-ago period) even though 77% of Twitters user base is international. International monetization is a key element of Twitters growth strategy. IPO Details. Twitter plans to list on the NYSE under the symbol TWTR. Based on the most recent filings, the company plans to issue 70 million shares (80.5 million shares including overallotment). Assuming an IPO pricing of $17-$20, the company could raise $1.2B (70M shares x $17 per share) to $1.6B (80.5M shares x $20 per share). Valuation Framework. Given Twitter is still in heavy investment mode, we think the companys top-line rather than bottom-line metrics are more appropriate for valuation purposes, at least in the near term. We have provided 3 scenarios a base case, an upside case and a downside case in our valuation discussion. o Our base case suggests TWTR could be valued around $25 per share a year from now and around $32 per share two years from now. o Our upside case suggests TWTR could be valued around $33 per share a year from now and around $48 two years from now. o Our downside case suggests TWTR could be valued around $13 per share a year from now and around $15 per share two years from now.

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TWITTER VALUATION FRAMEWORK: FOCUSING ON TOP-LINE GROWTH AND MULTIPLE OF SALES Given Twitter is still in heavy investment mode, we think the companys top-line rather than bottom-line metrics are more appropriate for valuation purposes, at least in the near term. We have provided 3 scenarios a base case, an upside case and a downside case in our valuation discussion. For an interactive model, please contact your Sterne Agee representative. Base Case Assumptions: 1. Advertising segment revenue growth of 64% /45% in 2014/ 2015 compared to an estimated 106% in 2013. 2. Data Licensing segment revenue growth of 25% /25% in 2014 / 2015 compared to an estimated 33% in 2013. 3. 80.5 million shares are issued in the IPO, i.e., overallotment is exercised. 4. Total Shares Outstanding of 705M shares, including 80.5 million new shares in the IPO. 5. Shares are issued at $20 per share leading to a capital raise of $1.6B and pro-forma cash of $1.9B. 6. At $20 per share, TWTR would currently be valued at an estimated 12x 2014 Sales or in line with its high-growth peers (FB, LNKD, YELP). 7. If this EV to 1 Yr Forward Sales multiple of 12x were to sustain for a year, TWTR could be valued at $25 per share at the end of 2014. Furthermore, if this 1 Yr Forward Sales multiple of 12x were to sustain for two years, TWTR could be valued at $32 per share at the end of 2015.
Twitter Inc. Valuation: Based on Multiple of Revenue
Base Case $MM Advertising Revenue Data Lincensing Revenue Total Revenue Adj. EBITDA Margin Incremental EBITDA Margin Adj. EBITDA 1 Yr Forward Sales Multiple at Yr End Enterprise Value at Yr End Market Cap at Yr End (including net Cash) Shares Outstanding (MM) Share Price at Yr End Y/Y Growth Advertising Revenue Data Lincensing Revenue Total Revenue Adj. EBITDA Source: Sterne Agee Estimates, Company Reports Actual 2012 $269 $48 $317 7% 30% $21 2013 $554 $63 $617 9% 12% $56 2014 $906 $79 $985 14% 21% $135 12x $15,722 $17,589 706 $25 Estimates 2015 $1,310 $99 $1,409 19% 32% $271 12x $21,259 $23,125 723 $32 2016 $1,772 $124 $1,895 29% 58% $552 2017 $2,284 $155 $2,438 35% 57% $861 2018 $2,804 $193 $2,997 38% 49% $1,132

247% 66% 198%

106% 33% 95% 165%

64% 25% 60% 140%

45% 25% 43% 101%

35% 25% 34% 104%

29% 25% 29% 56%

23% 25% 23% 32%

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Upside Case: Incremental revenue growth 20% above base case for advertising and 5% above base case for Data Licensing in each year. Assumptions: 1. Advertising segment revenue growth of 84% /65% in 2014/ 2015 compared to an estimated 106% in 2013. 2. Data Licensing segment revenue growth of 30% /30% in 2014 / 2015 compared to an estimated 33% in 2013. 3. 80.5 million shares are issued in the IPO, i.e., overallotment is exercised. 4. Total Shares Outstanding of 705M shares, including 80.5 million new shares in the IPO. 5. Shares are issued at $20 per share leading to a capital raise of $1.6B and proforma cash of $1.9B. 6. At $20 per share, TWTR would currently be valued at an estimated 12x 2014 Sales or in line with its high-growth peers (FB, LNKD, YELP). 7. If this EV to 1 Yr Forward Sales multiple of 12x were to sustain for a year, TWTR could be valued at $33 per share at the end of 2014. 8. Furthermore, if this 1 Yr Forward Sales multiple of 12x were to sustain for two years, TWTR could be valued at $49 per share at the end of 2015.
Twitter Inc. Valuation: Based on Multiple of Revenue
Upside Case Incremental 20% annual growth in Advertising; incremental 5% growth in Data Licensing relative to Base Case Actual Estimates 2012 2013 2014 2015 2016 Advertising Revenue Data Lincensing Revenue Total Revenue Adj. EBITDA Margin Incremental EBITDA Margin Adj. EBITDA 1 Yr Forward Sales Multiple at Yr End Enterprise Value at Yr End Market Cap at Yr End (including net Cash) Shares Outstanding (MM) Share Price at Yr End Y/Y Growth Advertising Revenue Data Lincensing Revenue Total Revenue Adj. EBITDA Source: Sterne Agee Estimates, Company Reports $269 $48 $317 7% 30% $21 $564 $63 $627 10% 14% $63 $1,035 $82 $1,117 16% 23% $175 12x $21,732 $23,277 706 $33 $1,704 $107 $1,811 21% 30% $384 12x $33,407 $34,953 723 $48 $2,645 $139 $2,784 31% 50% $866

2017 $3,938 $181 $4,119 37% 50% $1,536

2018 $5,623 $235 $5,858 40% 46% $2,329

247% 66% 198%

106% 33% 95% 199%

84% 30% 78% 177%

65% 30% 62% 119%

55% 30% 54% 126%

49% 30% 48% 77%

43% 30% 42% 52%

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Downside Case: 20% slower revenue growth in advertising and 5% slower growth in Data Licensing relative to Base Case in each year. Assumptions: 1. Advertising segment revenue growth of 44% /25% in 2014/ 2015 compared to an estimated 106% in 2013. 2. Data Licensing segment revenue growth of 20% /20% in 2014/2015 compared to an estimated 33% in 2013. 3. 80.5 million shares are issued in the IPO, i.e., overallotment is exercised. 4. Total Shares Outstanding of 705M shares, including 80.5 million new shares in the IPO. 5. Shares are issued at $20 per share leading to a capital raise of $1.6B and proforma cash of $1.9B. 6. At $20 per share, TWTR would currently be valued at an estimated 12x 2014 Sales or in line with its high-growth peers (FB, LNKD, YELP). 7. In the downside case, we assume a meaningful contraction in the 1 Yr Forward EV to Sales multiple from that at the time of the IPO. We assume a 33% contraction to 8x versus our assumption of a 12x forward multiple at the time of the IPO. 8. Assuming an EV to 1 Yr Forward Sales multiple of 8x, TWTR could be valued at $13 per share at the end of 2014. Furthermore, if the lower 1-Yr Forward Sales multiple of 8x were to sustain for two years, TWTR could be valued around $15 per share at the end of 2015.
Twitter Inc. Valuation: Based on Multiple of Revenue
Downside Case 20% slower growth in Advertising; 5% slower growth in Data licensing Relative to Base (Starting 2014) Actual Estimates 2012 2013 2014 2015 2016 Advertising Revenue Data Lincensing Revenue Total Revenue Adj. EBITDA Margin Incremental EBITDA Margin Adj. EBITDA 1 Yr Forward Sales Multiple at Yr End Enterprise Value at Yr End Market Cap at Yr End (including net Cash) Shares Outstanding (MM) Share Price at Yr End Y/Y Growth Advertising Revenue Data Lincensing Revenue Total Revenue Adj. EBITDA Source: SterneAgee Estimates, Company $269 $48 $317 7% 30% $21 $554 $63 $617 9% 12% $56 $795 $76 $871 13% 21% $110 7x $7,575 $9,121 706 $13 $991 $91 $1,082 17% 36% $186 7x $9,452 $10,997 723 $15 $1,241 $109 $1,350 24% 52% $326

2017 $1,475 $131 $1,607 28% 49% $452

2018 $1,664 $158 $1,822 28% 28% $512

247% 66% 198%

106% 33% 95%

44% 20% 60%

25% 20% 43%

25% 20% 34%

19% 20% 29%

13% 20% 23%

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TWTR EV to Sales: Relative Valuation Vs High Growth Peers

Current Suggested IPO Price Per Share Pro Forma Shares Out. (M) Mkt Cap Post IPO- $BB Pro Forma Cash Pro Forma Enterprise Value Pro Forma EV to Sales TWTR 2013 2014 2015 EV to Sales Avg: High Growth Peers* 2013 2014 2015 (* includes FB, LNKD and YELP) TWTR Premium (Discount) to High Growth Peers 2013 2014 2015 Source: Sterne Agee Estimates, Company Reports 18x 13x 9x 18x 13x 9x 18x 13x 9x 18x 13x 9x $17.00 706 $12.0 $1.7 $10 17x 10x 7x $18.00 706 $12.7 $1.8 $11 18x 11x 8x $19.00 706 $13.4 $1.9 $12 19x 12x 8x $20.00 706 $14 $1.9 $12 20x 12x 9x

-8% -17% -22%

-2% -12% -17%

3% -7% -12%

9% -2% -8%

TWTR EV to EBITDA: Relative Valuation Vs High Growth Peers

Current Suggested IPO Price Per Share Pro Forma Shares Out. (M) Mkt Cap Post IPO- $BB Pro Forma Cash Pro Forma Enterprise Value Pro Forma EV to EBITDA TWTR 2013 2014 2015 EV to EBITDA Avg: High Growth Peers* 2013 2014 2015 (* includes FB, LNKD and YELP) TWTR Premium (Discount) to High Growth Peers 2013 2014 2015 Source: Sterne Agee Estimates, Company Reports 85x 48x 30x 85x 48x 30x 85x 48x 30x 85x 48x 30x $17.00 706 $12.0 $1.7 $10 184x 77x 38x $18.00 706 $12.7 $1.8 $11 195x 81x 40x $19.00 706 $13.4 $1.9 $12 206x 86x 43x $20.00 706 $14 $1.9 $12 217x 91x 45x

117% 59% 26%

130% 69% 33%

143% 79% 41%

156% 88% 48%

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Twitters Long-Term Margin Target Model. On a non-GAAP basis, Twitters Adjusted EBITDA margins were ~ 7% in 2012 as well as for the 9 months ended September 30 th, 2013. Twitters long-term adjusted EBITDA margin target is in the range of 35% to 40%, as shown in the table below. We see this as reasonable, given the margin profile of other Internet companies, including social media companies such as Facebook (mid-50s), LinkedIn (30s), etc.

Twitter Target Model (Non-GAAP)

2012 Cost of Revenue Gross Margin R&D Costs Selling & Marketing G&A D&A Adj. EBITDA Margin 34% 66% 34% 27% 15% 17% 7% 2013 YTD 33% 67% 35% 30% 11% 16% 7% Target Range Target Mid-Point 21% to 23% 77% to 79% 19% to 21% 19% to 21% 10% 10% 35% to 40% 22% 78% 20% 20% 10% 10% 38%

Source: Company, Sterne Agee

COMPANY BACKGROUND Twitter is one of the worlds leading social networks, allowing users to create, distribute, and discover content in real time on the web and mobile devices. The company was founded in 2007 and is headquartered in San Francisco. Twitter is free for users and any user can create a Tweet, a post (with or without a photo) consisting of 140 characters or less. Users can follow other users including friends, celebrities, athletes, journalists, sports teams, media outlets, and brands. Twitter has 232 million monthly active users and 100 million daily active users, who collectively create roughly 500 million tweets per day.

Twitter's User Base

US 23%

International 77%

Source: Company Reports & Sterne Agee Estimates

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Advertising Value of the Platform. Twitters scale and deeply engaged user base create valuable opportunities for advertisers to leverage the platform. Advertisers can communicate directly with their followers for free, or they can purchase Twitters advertising servic es to reach a broader audience. As users engage with the platform, Twitter learns about their interests. Twitter integrates this user data into a set of promoted products, allowing advertisers to run more targeted and relevant campaigns on Twitter. Additionally, advertisers are increasingly supplementing their offline advertising campaigns with content from their Twitter campaigns. For example, integrating hash tags into a television commercial extends the reach of the ad by creating an opportunity for users to continue the conversation on Twitter. MoPub Twitter agreed to acquire MoPub in September 2013. MoPub is a mobile advertising exchange which Twitter plans to integrate with the Twitter advertising platform to allow real-time bidding so that advertisers can more easily automate and scale their ad purchases. TWTRs S-1 filings indicate MoPub was purchased for 14.79M shares of TWTR. The acquisition is expected to close in October/November 2013. TYPES OF PROMOTED PRODUCTS Promoted Tweets These appear within a users timeline and look like an ordinary tweet. They are pay-for-performance advertising and pricing is set through an auction. Advertisers pay Twitter when a user engages with a tweet. Promoted Accounts Advertisers can pay to have their accounts promoted within the who to follow section of Twitter. They appear in the same format as non-promoted accounts. This provides advertisers with an opportunity to grow their number of followers, building a community of users that are interested in their business, product, or service. These are also pay-for-performance advertising, so advertisers pay Twitter when a user follows a Promoted Account. Promoted Trends Promoted Trends appear at the top of the list of trending topics for an entire day in a particular country or on a global basis. When a user clicks on a promoted trend, they are taken to a page that displays search results for that trend as well as a promoted Tweet from the advertiser at the top of the page. Promoted Trends are the only advertising service that is sold on a fixed-fee-per-day basis. Twitter features one promoted trend per day per geography, and advertisers pay Twitter when the promoted trend is displayed Data Licensing Twitter sells data licenses, providing data partners with detailed historical and real-time analytics regarding users interactions with the platform. In the first 9 months of 2013, 11% of Twitters revenue came from Data Licensing, but the company expect s this percentage to decrease over time as this segment is growing slower than the advertising segment. Data partners pay a monthly licensing fee to use the data, over the period in which the data is made available to them (typically 2 years). Twitters top five data partners accounted for roughly 73% of its data licensing revenue in the first 9 months of 2013. Some of the key resellers of Twitters data licensing business include Datasift, Gnip and Topsy. Mobile. We think one of the key positives for TWTR is that it is already successful on mobile. Mobile is the primary driver for Twitter, as 76% of the monthly active users (MAUs) in the most recent quarter accessed Twitter via mobile. Additionally, over 70% of the advertising revenue was from mobile in the most recent quarter. The company believes that mobile users as a percentage of total will continue to grow in the near term. International. International revenue was $107M for the 9 months ended Sept. 30, or 25% of revenue (up from 17% of revenue in the year-ago period) even though 77% of Twitters user base is international. Most of the growth in the user base in the recent quarters has also come from outside the U.S. Management is focused on growing international revenue and closing the gap with the U.S. Recent sales and marketing efforts have focused on countries such as

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Australia, Brazil, Canada, Japan and the U.K. In the most recent quarter, Twitters advertising revenue per Timeline View was $2.58 (+50% y/y) in the U.S. and $0.36 (+112%) in the rest of the world, highlighting the potential monetization opportunity that exists in the rest of the world. Advertising revenue per Timeline View is calculated by dividing the advertising revenue per 1,000 timeline views (similar to the idea of CPMs).

Twitter's Geographic Revenue Mix

US International

25%

75%

Source: Company Reports & Sterne Agee Estimates Advertising Industry Trends. According to eMarketer, the worldwide digital advertising industry will be around $118 billion in 2013, up 13% y/y. By 2017, this industry is expected to grow to $173 billion, CAGR of 11% from 2012-2017. Within this, the mobile advertising industry is expected to grow the fastestCAGR of 48% from 2012-2017. Twitter, with its focus on mobile, finds itself well positioned to capture this strong growth trajectory of the industry.
Worldwide Digital Ad Spending, By Region
2011 $34.58 $22.40 $23.51 $2.87 $2.48 $0.59 $86.43 2012 $39.70 $30.58 $25.76 $3.70 $3.39 $0.91 $104.04 2013 $45.44 $33.76 $28.39 $4.55 $4.11 $1.35 $117.60 2014 $51.05 $37.77 $31.37 $5.28 $5.29 $1.86 $132.62 2015 $56.24 $41.78 $33.79 $5.97 $6.18 $2.42 $146.38 2016 $61.31 $45.83 $36.09 $6.50 $7.23 $3.06 $160.02 2017 $65.59 $50.18 $38.25 $7.03 $8.27 $3.80 $173.12 Y/Y Growth 13 vs '12 14 vs '13 14% 12% 10% 12% 10% 10% 23% 16% 21% 29% 48% 38% 13% 13% CAGR '12-'17 11% 10% 8% 14% 20% 33% 11%

North America Asia Pacific Western Europe Central & Eastern Europe Latin America Middle East & Africa Total Source: eMarketer

Worldwide Mobile Ad Spending By Region

2011 $1.38 $1.77 $0.78 $0.04 $0.04 $0.01 $4.02 2012 $4.29 $2.69 $1.67 $0.07 $0.08 $0.02 $8.82 2013 $8.54 $4.15 $3.58 $0.16 $0.15 $0.05 $16.64 2014 $13.32 $5.85 $6.40 $0.27 $0.29 $0.09 $26.23 2015 $19.07 $8.11 $9.19 $0.42 $0.48 $0.14 $37.41 2016 $25.44 $10.50 $12.05 $0.61 $0.77 $0.22 $49.59 2017 $32.20 $13.05 $15.19 $0.82 $1.20 $0.34 $62.80 Y/Y Growth 13 vs '12 14 vs '13 99% 56% 54% 41% 114% 79% 133% 68% 95% 91% 139% 71% 89% 58% CAGR '12-'17 50% 37% 55% 64% 73% 74% 48%

North America Asia Pacific Western Europe Central & Eastern Europe Latin America Middle East & Africa Total

Mobile Ad Spending % Mix by Geography North America 4.0% 10.8% Asia Pacific 7.9% 8.8% Western Europe 3.3% 6.5% Central & Eastern Europe 1.3% 1.9% Latin America 1.7% 2.3% Middle East & Africa 1.7% 2.3% Total 4.6% 8.5% Source: eMarketer

18.8% 12.3% 12.6% 3.6% 3.7% 3.7% 14.1%

26.1% 15.5% 20.4% 5.2% 5.5% 4.6% 19.8%

33.9% 19.4% 27.2% 7.1% 7.8% 5.7% 25.6%

41.5% 22.9% 33.4% 9.4% 10.6% 7.2% 31.0%

49.1% 26.0% 39.7% 11.7% 14.5% 8.9% 36.3%

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GROWTH STRATEGY Grow Users According to InternetWorld Stats, as of 2Q 2012 there were approximately 2.4 billion internet users. According to Strategy Analytics, there were 1.04 billion smartphone users as of the end of 3Q12. With 230 million MAUs, Twitter plans to increase its penetration by expanding geographically through global partnerships, continuing to develop and improve the functionality and adoption of its mobile application, and continuing to build and acquire new technologies and services to enhance the value of the Twitter platform. As of the end of 3Q13, Twitter had 53 M users in the U.S. and 179 M in the rest of the world.

Twitter Monthly Active Users (MAUs-In Millions)

250

200

150 140 156 169

179

100 104 50 20 10 28 12 35 14 39 15 49 19 62 23 74 87

114

127

27

30

34

37

40

45

48

49

53

United States

International

Source: Company Reports & Sterne Agee Estimates Grow Engagement through growth in Timeline Views Twitter measures its engagement in terms of timeline views. What is a timeline? When a user logs in to their Twitter account, they land on the Tweets timeline view of their homepage (see below). A users home timeline is a long stream of Tweets from those the user has chosen to follow, with the newest updates at the top. Timeline Views were 446 billion or an increase of 67% in the first 9 months of 2013. During the 3 months ended September 30, 2013, Timeline Views per MAU were 685, up 8% y/y.

Source: Company Website

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Timeline Views (000's)

180,000

160,000 140,000 120,000 100,000 80,000 73,513 60,000 40,000 20,000 23,070 Q1:12A Q2:12A Q3:12A United States Q4:12A Q1:13A Q2:13A Q3:13A International 47,949 39,541 40,614 43,169 61,526 96,788 81,571 110,285 115,589

27,925

32,554

35,914

Source: Company Reports & Sterne Agee Estimates Grow Platform Partners Twitters platform partners include publishers, media, outlets, and developers, who have integrated with Twitter through an API, which allows them to seamlessly leverage twitter as a complementary distribution channel for their content. The API also allows them to distribute Twitter content across their own properties, and use other Twitter-created tools to add value to their websites and applications. Twitter plans to continue to integrate more content into their API to allow platform partners to distribute more forms of content. They also plan to seek more partnerships with traditional media. While Twitter doesnt generate revenue directly from their platform partners usage of the API, the API is an important piece of enhancing Twitter users experience on the platform and ad ds to the completeness of Twitters advertising appeal. Enhance Value for Advertisers - In the first 9 months of 2013, 89% of Twitters revenue came from advertising, so increasing the value of the platform for these advertisers is central to the companys growth strategy. They will continue to improve their targeting capabilities by learning more about users interests. The company plans t o increase their international revenue by launching a self-service advertising program in select international markets, as international revenue only represented 25% of the total revenue in the first 9 months of 2013. Lastly, they plan to continue to create new and unique advertising formats including a new product designed to allow advertisers to embed ads into real-time video content.

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Executive Officers Richard Costolo He has served as the CEO since October 2010 and a member of the board since September 2009. He was the COO from September 2009 to October 2010. Prior to joining Twitter, he worked as a product manager for Google. He also founded FeedBurner, an RSS subscription feed provider. He graduated from the University of Michigan, Ann Arbor, with a degree in Computer Science Ali Rowghani He has served as Twitters COO since December 2012 and was CFO from March 2010 to December 2012. Prior to joining Twitter, he served in various roles at Pixar Animation Studios. He graduated from Stanford University with an MBA and a degree in International Relations. Mike Gupta He has served as the CFO since December 2012. Prior to joining Twitter, he served in various roles at Zynga and Yahoo. He graduated from New York University with degrees in Accounting and Economics and has an MBA from the University of Chicago. Adam Bain He has served as the President of Global Revenue since September 2010. Prior to joining Twitter, he held various roles at News Corporation. He holds a B.A. in English Journalism from Miami University. Christopher Fry He has served as the SVP of Engineering since March 2013. Prior to that he served as the VP of Engineering. Between June 2005 and April 2012, he served in various roles at salesforce.com. He holds a B.A. in Cognitive Science from Vassar College and a Ph.D. in Cognitive Science from the University of California, San Diego. Vijaya Gadde She has served as the General Counsel and Secretary since August 2013, and was the Legal Director from July 2011 to August 2013. Prior to joining Twitter, she served in various legal roles at Juniper Networks and Wilson Sonsini Goodrich & Rosati. She graduated from Cornell University with a degree in Industrial and Labor Relations and holds a J.D. from New York University School of Law. Non-Employee Directors Jack Dorsey Mr. Dorsey is one of the founders and has served as the Chairman of the board since October 2008. He served as the President and CEO from May 2007 to October 2008. He is also the Co-Founder and CEO of Square. Peter Chernin Mr. Chernin has served on the board since November 2012. In 2009 he founded Chernin Entertainment, a film production company. He also co-founded CA Media, a company that builds and manages media, technology and entertainment businesses throughout the Asia Pacific region. He has also held various positions at News Corporation. He holds a B.A. in English Literature from the University of California, Berkeley. Peter Currie Mr. Currie has served as a board member since November 2010. He has served as the President of Currie Capital since April 2004, a private investment company. Prior to that, he served as the CFO of McCaw Cellular Communications. He holds a B.A. in Economics and French Literature from Williams College and an M.B.A. from Stanford University. Peter Fenton Mr. Fenton has served on the board since February 2009. Since September 2006, he has served as a General Partner of Benchmark Capital. From October 1999 to May 2006, he served as a Managing Partner at Accel Partners, a venture capital firm. He holds a B.A. in Philosophy and an M.B.A. from Stanford University. David Rosenblatt Mr. Rosenblatt has served on the board since December 2010. Since November 2011, he has served as the CEO of 1stdibs.com, an online luxury marketplace. From October 2008 to May 2009 he served as the President of Global Display Advertising at

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Google. He joined Google in connection with Googles acquisition of DoubleClick where Mr. Rosenblatt served from 1997. He holds a B.A. in East Asian Studies from Yale University and an M.B.A. from Stanford University. Evan Williams Mr. Williams is one of the co-founders and has served on the board since May 2007. From October 2008 to October 2010, he served as the President and CEO, from July 2009 to March 2010 as the CFO, and from February 2008 to October 2008 as the Chief Product Officer. Since April 2011, he has served as CEO of Medium, an online publishing platform, and Since October 2006, as CEO of The Obvious Corporation, a technology systems company.

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Twitter Quarterly Income Statement (Page 1)

Twitter Inc.
Sterne Agee Model Revenue Advertising Revenue Data licensing Total Revenue Sequential Growth Advertising Revenue Data licensing Total Revenue Y/Y Growth Advertising Revenue Data licensing Total Revenue 247% 66% 198% 2012A 269,421 47,512 316,933 Q1:13A 100,460 13,883 114,343 1% 9% 2% 126% 41% 111% Q2:13A 120,972 18,320 139,292 20% 32% 22% 113% 63% 105% Q3:13A 153,437 15,143 168,580 27% -17% 21% 123% 11% 105% Q4:13E 179,017 15,991 195,008 17% 6% 16% 80% 25% 74% 106% 33% 95% 2013E 553,886 63,337 617,223 Q1:14E 182,598 17,354 199,951 2% 9% 3% 82% 25% 75% Q2:14E 209,987 22,900 232,887 15% 32% 16% 74% 25% 67% Q3:14E 237,286 18,929 256,214 13% -17% 10% 55% 25% 52% Q4:14E 275,957 19,989 295,946 16% 6% 16% 54% 25% 52% 64% 25% 60% 45% 25% 43% 2014E 905,827 79,172 984,998 2015E 1,310,184 98,964 1,409,149

Costs and Expenses Cost of revenue 127,968 40,771 49,102 59,179 62,403 Research and development 106,382 39,149 48,491 58,127 60,453 Sales and marketing 85,205 30,374 42,709 55,472 62,403 General and administrative 48,720 15,034 15,260 15,532 15,601 Total costs and expenses 368,275 125,328 155,562 188,310 200,859 Loss from operations (51,342) (10,985) (16,270) (19,730) (5,850) add back: Depreciation and amortization incl. above72,506 22,730 25,917 29,023 31,201 Adjusted EBITDA Adjusted EBITDA Margin Incremental EBITDA Margin Adjusted EBITDA Growth Y/Y 21,164 6.7% 30% 11,745 10.3% 21% 1242% 9,647 6.9% 11% 524% 9,293 5.5% 7% 218% 25,351 13.0% 9% 44%

211,455 63,984 73,359 79,426 90,263 206,220 61,985 71,031 76,864 87,304 190,958 63,984 73,359 79,426 90,263 61,427 17,996 20,960 23,059 26,635 670,059 207,949 238,709 258,776 294,466 (52,835) (7,998) (5,822) (2,562) 1,480 108,871 31,992 36,098 38,432 42,912 56,036 9.1% 12% 165% 23,994 12.0% 14% 104% 4000 0 (3,998) 500 30,275 13.0% 22% 214% 4000 0 (1,822) 500 35,870 14.0% 30% 286% 4000 0 1,438 500

307,034 393,133 297,184 397,370 307,034 393,133 88,650 140,915 999,901 1,324,551 (14,903) 84,598 149,434 185,998 270,596 19.2% 32% 101% 16,000 2,000

44,392 134,531 15.0% 13.7% 19% 21% 75% 140% 4000 0 5,480 500 16,000 1,097 2,000

Interest income (expense), net (2,486) (1,233) (1,513) (1,727) Other income (expense), net 399 (1,529) (1,019) 818 Loss before income taxes (53,429) (13,747) (18,802) (20,639) Provision (benefit) for income taxes 754 357 777 360 GAAP Net Income (52,675) (13,390) (18,025) (20,279) add back: amortization of acquired intangibles 18,687 3,876 3,302 3,783 add back: income tax effects related to acquisitions (220) (296) (87) Non-GAAP Net Income (34,208) (10,524) (16,364) (17,216) Shares Outstanding EPS Source: Company Reports and Sterne Agee

(1,927) (6,400) 0 (1,730) (7,777) (60,965) 500 1,994 (7,277) (58,971) 3,783 14,744 (383) (4,494) (44,610)

3,783 14,744 3,783 14,744 37,054 103,596 (715) 12,422 4,721 19,724 37,054 103,596 705,674 707,438 709,207 710,980 708,325 715,435 $ (0.00) $ 0.02 $ 0.01 $ 0.03 $ 0.05 $ 0.14

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Twitter Quarterly Income Statement (Page 2)

2012A Non-GAAP Costs as % of Sales Cost of revenue Research and development Sales and marketing General and administrative Total costs and expenses Depreciation & Amortization Adj. EBITDA margin Growth y/y Advertising Revenue Data licensing Total Revenue Cost of revenue Research and development Sales and marketing General and administrative Total costs and expenses Growth Q/Q Advertising Revenue Data licensing Total Revenue Cost of revenue Research and development Sales and marketing General and administrative Total costs and expenses Source: Company Reports & Sterne Agee Q1:13A Q2:13A Q3:13A Q4:13E 2013E Q1:14E Q2:14E Q3:14E Q4:14E 30.50% 29.50% 30.50% 9.00% 99.50% 14.5% 15% 54% 25% 52% 45% 44% 45% 71% 47% 2014E 31% 30% 31.2% 9% 102% 15% 14% 64% 25% 60% 45% 44% 61% 44% 49% 2015E 28% 28% 27.9% 10% 94% 13% 19% 45% 25% 43% 28% 34% 28% 59% 32%

40% 35.66% 35.25% 35.10% 32.00% 34% 34.24% 34.81% 34.48% 31.00% 27% 26.56% 30.66% 32.91% 32.00% 15% 13.15% 10.96% 9.21% 8.00% 116% 109.61% 111.68% 111.70% 103.00% 23% 19.9% 18.6% 17.2% 16.0% 6.7% 10% 6.9% 5.5% 13% 247% 66% 198% 113% 128% 249% 15% 112% 126% 41% 111% 49% 133% 115% 39% 81% 113% 63% 105% 62% 109% 121% 37% 85% 123% 11% 105% 77% 96% 138% 20% 90% 80% 25% 74% 70% 65% 120% 13% 74%

34% 32.00% 31.50% 31.00% 33% 31.00% 30.50% 30.00% 31% 32.00% 31.50% 31.00% 10% 9.00% 9.00% 9.00% 109% 104.00% 102.50% 101.00% 18% 16.0% 15.5% 15.0% 9% 12% 13% 14% 106% 33% 95% 65% 94% 124% 26% 82% 82% 25% 75% 57% 58% 111% 20% 66% 74% 25% 67% 49% 46% 72% 37% 53% 55% 25% 52% 34% 32% 43% 48% 37%

1% 9% 2% 11% 7% 7% 9% 8%

20% 32% 22% 20% 24% 41% 2% 24%

27% -17% 21% 21% 20% 30% 2% 21%

17% 6% 16% 5% 4% 12% 0% 7%

2% 9% 3% 3% 3% 3% 15% 4%

15% 32% 16% 15% 15% 15% 16% 15%

13% -17% 10% 8% 8% 8% 10% 8%

16% 6% 16% 14% 14% 14% 16% 14%

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APPENDIX SECTION
Company Description:
Twitter is one of the world's largest social networks with over 230 million monthly active users. The service is free for its users, but the company generates revenue through advertising and data licensing

IMPORTANT DISCLOSURES: Regulation Analyst Certification:

I, Arvind Bhatia and Brett Strauser, hereby certify the views expressed in this research report accurately reflect my personal views about the subject security(ies) or issuer(s). I further certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this report.

Price Target Risks & Related Risk Factors:

Investment risks associated with the achievement of the price target include, but are not limited to, a company's failure to achieve Sterne, Agee & Leach, Inc., earnings and revenue estimates; unforeseen macroeconomic and/or industry events that adversely affect demand for a company's products or services; product obsolescence; changes in investor sentiment regarding the specific company or industry; intense and rapidly changing competitive pressures; the continuing development of industry standards; the company's ability to recruit and retain competent personnel; and adverse market conditions. For a complete discussion of the risk factors that could affect the market price of a company's shares, refer to the most recent Form 10-Q or 10-K that a company has filed with the Securities Exchange Commission.

Company Specific Risks:

Twitter is still not profitable on an EPS basis. It faces competition from other social media networks that have greater resources and longer operating history.

Valuation Methodology:
Methodology for assigning ratings and target prices includes qualitative and quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition; and expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry or company-specific occurrences. Sterne, Agee & Leach, Inc., analysts base valuations on a combination of forward looking earnings multiples, price-to-revenue multiples, and enterprise-value-to-revenue ratios. Sterne, Agee & Leach, Inc., believes this accurately reflects the strong absolute value of earnings, the strong earnings growth rate, the inherent profitability, and adjusted balance sheet factors. Additional company-specific valuation methodology is available through Sterne, Agee & Leach, Inc.

Definition of Investment Ratings:

BUY: We expect this stock to outperform the industry over the next 12 months. NEUTRAL: We expect this stock to perform in line with the industry over the next 12 months. UNDERPERFORM: We expect this stock to underperform the industry over the next 12 months. RESTRICTED: Restricted list requirements preclude comment.

Ratings Distribution:
Rating Category Buy Neutral Underperform Count 230 232 19 Percent 47.82% 48.23% 3.95% Count 33 13 1 IB Serv./ Past 12Mos. Percent 14.35% 5.60% 5.26%

ADDITIONAL INFORMATION AVAILABLE UPON REQUEST: Contact Robert Hoehn at 1-212-338-4731. Other Disclosures: Opinions expressed are our present opinions only. This material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Sterne, Agee & Leach, Inc., its affiliates, or one or more of its officers, employees, or consultants may, at times, have long or short or options positions in the securities mentioned herein and may act as principal or agent to buy or sell such securities. Copyright 2013 Sterne, Agee & Leach, Inc. All Rights Reserved.

Appendix Section, Page I

October 28, 2013

To receive price charts or other disclosures on the companies mentioned in this report, please visit our website at https:// sterneagee.bluematrix.com/sellside/Disclosures.action or contact Sterne, Agee & Leach, Inc. toll-free at (800) 240-1438 or (205) 949-3689.

Appendix Section, Page II

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