TWITTER, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes thereto included in Item 1 "Financial Statements"
in this Quarterly Report on Form 10-Q. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those discussed below. Factors that could cause or contribute to
such differences include, but are not limited to, those identified below and
those discussed in the section titled "Risk Factors" included elsewhere in this
Quarterly Report on Form 10-Q.

Highlights of Quarterly Results

Revenue for the three months ended June 30, 2022 totaled $1.18 billiona decrease of 1% year over year.

•Advertising revenue totaled $1.08 billionan increase of 2% year over year.

• Subscription and other revenue totaled $100.7 milliona decrease of 27% year over year.

• US revenue totals $661.3 millionan increase of 1% year over year.

• International revenue totals $515.4 milliona decrease of 4% year over year.

•Total ad engagements increased 7% year over year.

• Cost per engagement decreased 5% year over year.

Average monetizable daily active usage (mDAU)(1) ​​for the three months ended
June 30, 2022 was 237.8 million, an increase of 16.6% year over year.


Loss from operations was $343.8 million, or 29% of total revenue, for the three
months ended June 30, 2022, compared to income from operations of $30.3 million,
or 3% of total revenue, for the three months ended June 30, 2021.

Net loss what $270.0 million for the three months ended June 30, 2022 compared to net income of $65.6 million for the three months ended June 30, 2021.

Cash, cash equivalents and short-term investments in marketable securities totaled $6.12 billion as of June 30, 2022.



(1) In March of 2019, we launched a feature that allowed people to link multiple separate
accounts together in order to conveniently switch between accounts. An error was made at that
time, such that actions taken via the primary account resulted in all linked accounts being
counted as mDAU. This resulted in an overstatement of mDAU from the first quarter of 2019
through the fourth quarter of 2021. See the section titled, "mDAU Recast" in our Quarterly
Report on Form 10-Q for the three months ended March 31, 2022 filed on May 2, 2022 for more
information.


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Pending mergers


On April 25, 2022, we entered into an agreement and plan of merger (the Merger
Agreement) with X Holdings I, Inc. (Parent), X Holdings II, Inc. (Acquisition
Sub), and, solely for the purpose of certain provisions of the Merger Agreement,
Elon Musk. Parent and Acquisition Sub are affiliates of Elon Musk. The Merger
Agreement provides that, subject to the terms and conditions set forth in the
Merger Agreement, Acquisition Sub will merge with and into Twitter (the Merger),
with Twitter surviving the Merger and becoming a wholly owned subsidiary of
Parent. Under the Merger Agreement, at the effective time of the Merger, each
issued and outstanding share of our common stock (subject to certain exceptions
set forth in the Merger Agreement) will be canceled and converted into the right
to receive $54.20 in cash, without interest.

The Merger Agreement contains certain termination rights for Twitter and Parent.
Upon termination of the Merger Agreement under specified limited circumstances,
we will be required to pay Parent a termination fee of $1.0 billion.
Specifically, this termination fee is payable by us to Parent if (1) we
terminate the Merger Agreement in order to be able to enter into a definitive
agreement for a competing acquisition proposal that constitutes a Superior
Proposal (as defined in the Merger Agreement); or (2) Parent terminates the
Merger Agreement because our board of directors recommends that our stockholders
vote against the adoption of the Merger Agreement or in favor of any competing
acquisition proposal. This termination fee will also be payable by us to Parent
in the event that (1) a competing acquisition proposal for 50% or more of our
stock or consolidated assets has been publicly announced and not withdrawn, (2)
the Merger Agreement is terminated because our stockholders fail to adopt the
Merger Agreement or because we materially breach the Merger Agreement, and (3)
within twelve months of such termination of the Merger Agreement, we enter into
a definitive agreement providing for a competing acquisition proposal for 50% or
more of our stock or consolidated assets and such acquisition is subsequently
consummated. Upon termination of the Merger Agreement under other specified
limited circumstances, Parent will be required to pay us a termination fee of
$1.0 billion. Specifically, this termination fee is payable by Parent to us if
the Merger Agreement is terminated by us because (1) Parent and Acquisition Sub
failed to consummate the Merger as required pursuant to, and in the
circumstances specified in, and subject to the terms of, the Merger Agreement
while Twitter stood ready, willing and able to consummate the Merger and the
other transactions contemplated by the Merger Agreement; or (2) Parent,
Acquisition Sub or Mr. Musk breaches its or his representations, warranties or
covenants in a manner that would cause the related closing conditions to not be
satisfied. Mr. Musk has provided Twitter with a limited guarantee in our favor,
which guarantees, among other things, the payment of the termination fee payable
by Parent to us, subject to the conditions set forth therein.

In addition to the foregoing termination rights, and subject to certain
limitations, either party may terminate the Merger Agreement if the Merger is
not consummated by October 24, 2022 (the Termination Date). The Termination Date
will be extended for six months if the closing conditions related to applicable
antitrust and foreign investment clearances and the absence of any applicable
law or order making illegal or prohibiting the Merger have not been satisfied as
of such date. In addition, if a party to the Merger Agreement brings litigation
to enforce the performance of the Merger Agreement, the Termination Date will be
extended to (i) the 20th business day following the resolution of such
litigation or (ii) such other time period established by the court in such
litigation.

On July 8, 2022, representatives of Mr. Musk delivered a notice purporting to
terminate the Merger Agreement. We believe that Mr. Musk's purported termination
is invalid and wrongful, and the Merger Agreement remains in effect. On July 12,
2022, we commenced litigation against Mr. Musk, Parent and Acquisition Sub to
cause them to perform their obligations under the Merger Agreement and
consummate the closing in accordance with the terms of the Merger Agreement. On
July 19, 2022, the Delaware Court of Chancery granted Twitter's motion to
expedite proceedings and scheduled a five day trial to begin in October 2022.

As of the date hereof, all required regulatory clearances and approvals have
been obtained and stockholder approval of the Merger Agreement is the only
remaining approval or regulatory condition to consummating the closing of the
Merger under the Merger Agreement. The exact timing of completion of the Merger,
if at all, cannot be predicted because the Merger is subject to ongoing
litigation, adoption of the Merger Agreement by our stockholders and the
satisfaction of the other remaining closing conditions.

We are subject to customary restrictions on our ability to solicit alternative
acquisition proposals from third parties and to provide non-public information
to, and participate in discussions and engage in negotiations with, third
parties regarding alternative acquisition proposals, subject to customary
exceptions.

For further discussion about the Merger and the litigation relating to the
Merger, see the section titled "Proposed Transaction with Elon Musk" in Note 1 -
Summary of Significant Accounting Policies and the section titled "Legal
Proceedings" in Note 15 - Commitments and Contingencies in the notes to the
consolidated financial statements included in Part I, Item 1 of this Quarterly
Report on Form 10-Q, our Form 8-K filed with the SEC on April 26, 2022, and our
revised preliminary proxy statement in connection with the solicitation of
proxies to approve the Merger filed with the SEC on July 15, 2022, as well as
the definitive proxy statement and any other documents or materials related to
the Merger we may file when they become available.


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Current Economic Conditions and COVID-19


We are subject to risks and uncertainties caused by events with significant
macroeconomic impacts, including, but not limited to, the COVID-19 pandemic, the
Russian invasion of Ukraine, and actions taken to counter inflation. Supply
chain constraints, labor shortages, inflation, and rising interest rates and
reduced consumer confidence have caused advertisers in a variety of industries
to be cautious in their spending and to either pause or slow their campaigns. In
2021 and the first half of 2022, these macro factors had a negative impact on,
and may negatively impact in future periods, our advertising revenue.

In order to manage our cost structure in light of the current macroeconomic
environment, we are seeking opportunities to reduce our expense growth. We
significantly slowed hiring in the second quarter of 2022 and are being more
selective about the roles that we are filling, and we have simultaneously seen
our attrition rate increase. We have also reduced non-labor spend in areas such
as travel and marketing.

The extent of the ongoing impact of these macroeconomic events on our business
and on global economic activity is uncertain and may continue to adversely
affect our business, operations and financial results. Our past results may not
be indicative of our future performance, and historical trends in revenue,
income (loss) from operations, net income (loss), and net income (loss) per
share may differ materially. The risks related to our business are further
described in the section titled "Risk Factors" in Part II, Item 1A of this
Quarterly Report on Form 10-Q.


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Key Metrics


We review a number of metrics, including the following key metrics, to evaluate
our business, measure our performance, identify trends affecting our business,
formulate business plans and make strategic decisions.

Monetizable Daily Active Usage or Users (mDAU). We define mDAU as people,
organizations, or other accounts who logged in or were otherwise authenticated
and accessed Twitter on any given day through twitter.com or Twitter
applications that are able to show ads, or paid Twitter products, including
subscriptions. We believe that mDAU, and its related growth, is the best way to
measure our success against our objectives and to show the size of our audience
and engagement. Average mDAU for a period represents the number of mDAU on each
day of such period divided by the number of days for such period. Changes in
mDAU are a measure of changes in the size of our daily logged in or otherwise
authenticated active total accounts. To calculate the year-over-year change in
mDAU, we subtract the average mDAU for the three months ended in the previous
year from the average mDAU for the same three months ended in the current year
and divide the result by the average mDAU for the three months ended in the
previous year. Additionally, our calculation of mDAU is not based on any
standardized industry methodology and is not necessarily calculated in the same
manner or comparable to similarly titled measures presented by other companies.

In the three months ended June 30, 2022, we had 237.8 million average mDAU**,
which represents an increase of 16.6% from the three months ended June 30, 2021.
The increase was driven by ongoing product improvements and global conversation
around current events. In the three months ended June 30, 2022, we had
41.5 million average mDAU in the United States and 196.3 million average mDAU in
the rest of the world, which represent increases of 14.7% and 17.0%,
respectively, from the three months ended June 30, 2021.

For additional information on how we calculate changes in mDAU and factors that can affect this metric, see the section titled “Note Regarding Key Metrics.”

                    [[Image Removed: twtr-20220630_g1.jpg]]

[[Image Removed: twtr-20220630_g2.jpg]][[Image Removed: twtr-20220630_g3.jpg]]

* Please note the sum of average mDAU in the United States and average mDAU in the rest of the world may not equal the total average mDAU indicated due to rounding.


** An error introduced in March of 2019 resulted in an overstatement of mDAU
from the first quarter of 2019 through the fourth quarter of 2021. The charts
above provide updated values for mDAU from the fourth quarter of 2020 to the
fourth quarter of 2021. See the section titled "mDAU Recast" in our Quarterly
Report on Form 10-Q for the three months ended March 31, 2022 filed on May 2,
2022 for more information.

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Changes in Ad Engagements and Changes in Cost per Ad Engagement. We define an ad
engagement as an interaction with one of our pay-for-performance advertising
products. Ad engagements with our advertising products are based on the
completion of an objective set out by an advertiser such as expanding,
Retweeting, liking or replying to a Promoted Ad, viewing an embedded video,
downloading or engaging with a promoted mobile application, clicking on a
website link, signing up for marketing emails from advertisers, following the
account that Tweets a Promoted Ad, or completing a transaction on an external
website. We believe changes in ad engagements is one way to measure engagement
with our advertising products. Cost per ad engagement is an output of our ads
auction process, and will vary from one period to another based on geographic
performance, auction dynamics, the strength of demand for various ad formats,
and campaign objectives.

In the three months ended June 30, 2022, ad engagements increased 7% from the
three months ended June 30, 2021, due to our growing audience and increased
demand for video ads on a year-over-year basis, offset in part by a mix shift to
lower funnel ad formats, which generally have lower engagement rates and higher
cost per ad engagement. In the three months ended June 30, 2022, cost per ad
engagement decreased by 5% compared to the three months ended June 30, 2021,
primarily driven by ad impression growth outpacing demand across most ad
formats.

[[Image Removed: twtr-20220630_g4.jpg]][[Image Removed: twtr-20220630_g5.jpg]]

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Results of operations

The following tables set forth our consolidated statements of operations data for each of the periods presented (in thousands):

                                                             Three Months Ended June 30,                     Six Months Ended June 30,
                                                              2022                     2021                  2022                   2021
Revenue
Advertising services                                 $     1,076,003              $ 1,053,411          $    2,182,581          $ 1,952,251
Subscription and other                                       100,657                  137,016                 195,063              274,194
Total revenue                                              1,176,660                1,190,427               2,377,644            2,226,445
Costs and expenses (1)
Cost of revenue                                              540,676                  416,932               1,048,126              797,940
Research and development                                     454,859                  299,859                 826,554              550,568
Sales and marketing                                          308,301                  301,902                 608,110              536,494
General and administrative                                   216,586                  141,482                 366,449              259,009

Total costs and expenses                                   1,520,422                1,160,175               2,849,239            2,144,011
Income (loss) from operations                               (343,762)                  30,252                (471,595)              82,434
Interest expense                                             (23,342)                 (13,893)                (38,786)             (27,078)
Interest income                                               13,595                    9,202                  21,557               20,203
Other income, net                                             17,616                   55,739                  11,110               55,745
Gain (loss) on sale of asset group                               (11)                       -                 970,463                    -
Income (loss) before income taxes                           (335,904)                  81,300                 492,749              131,304
Provision (benefit) for income taxes                         (65,897)                  15,651                 249,470               (2,350)
Net income (loss)                                    $      (270,007)             $    65,649          $      243,279          $   133,654


(1)Costs and expenses include stock-based compensation expense as follows (in
thousands):
                                                     Three Months Ended June 30,                 Six Months Ended June 30,
                                                       2022                  2021                 2022                  2021
Cost of revenue                                  $       19,813          $  13,120          $       32,693          $  21,852
Research and development                                167,403            103,312                 274,007            168,468
Sales and marketing                                      50,792             36,371                  79,956             57,542
General and administrative                               44,182             25,399                  72,797             41,213
Total stock-based compensation expense           $      282,190          $ 178,202          $      459,453          $ 289,075



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The following table sets forth our consolidated statements of operations data for each of the periods presented as a percentage of revenue:

                                                        Three Months Ended June 30,              Six Months Ended June 30,
                                                         2022                2021                2022                2021
Revenue
Advertising services                                         91  %               88  %               92  %               88  %
Subscription and other                                        9                  12                   8                  12
Total revenue                                               100                 100                 100                 100
Costs and expenses
Cost of revenue                                              46                  35                  44                  36
Research and development                                     39                  25                  35                  25
Sales and marketing                                          26                  25                  26                  24
General and administrative                                   18                  12                  15                  12

Total costs and expenses                                    129                  97                 120                  96
Income (loss) from operations                               (29)                  3                 (20)                  4
Interest expense                                             (2)                 (1)                 (2)                 (1)
Interest income                                               1                   1                   1                   1
Other income, net                                             1                   5                   -                   3
Gain (loss) on sale of asset group                            -                   -                  41                   -
Income (loss) before income taxes                           (29)                  7                  21                   6
Provision (benefit) for income taxes                         (6)                  1                  10                   -
Net income (loss)                                           (23) %                6  %               10  %                6  %


Revenue

We generate the substantial majority of our revenue from the sale of advertising
services. We also generate revenue by licensing our data to third parties and
providing mobile advertising exchange services.

Advertising Services

We generate most of our advertising revenue by selling our Promoted Products. Currently, our Promoted Products consist of the following:


•Promoted Ads and Twitter Amplify. Promoted Ads, which are labeled as
"promoted," appear within a timeline, search results or profile pages just like
an ordinary Tweet regardless of device, whether it be desktop or mobile. Using
our proprietary algorithms and understanding of the interests of each account,
we can deliver Promoted Ads that are intended to be relevant to a particular
account. We enable our advertisers to target an audience based on an individual
account's interest graph. Our Promoted Ads are pay-for-performance or
pay-for-impression delivered advertising that are priced through an auction. Our
Promoted Ads include objective-based features that allow advertisers to pay only
for the types of engagement selected by the advertisers, such as Tweet
engagements (e.g., Retweets, replies and likes), website clicks, mobile
application installs or engagements, obtaining new followers, or video views.

•Follower Ads. Follower Ads, which are labeled as “promoted,” provide a way for our advertisers to build and grow an audience that is interested in their business, product or service. Our Follower Ads are pay-for-performance advertising priced through an auction.

•Twitter takeovers. Twitter Takeover, which are labeled as “promoted,” appear at the top of the list of trending topics or timeline for an entire day in a particular country or on a global basis. We sell our Twitter Takeover on a fixed-fee-per-day basis.

While the majority of the Promoted Products we sell to our advertisers are placed on Twitter, we also generate advertising revenue by placing advertising products that we sell to advertisers on third-party publishers’ websites, applications or other offerings.

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Subscription and other


To better reflect our business opportunities, including the sale of MoPub and
the launch of Twitter Blue, we updated the name of "Data Licensing and Other
Revenue" to "Subscription and Other Revenue" in the first quarter of 2022. We
generate subscription and other revenue by (i) offering data products and data
licenses that allow our data partners to access, search and analyze historical
and real-time data on our platform, which consists of public Tweets and their
content, through the Twitter Developer Platform, and (ii) providing
subscription-related offerings such as Twitter Blue, which allows accounts to
pay for exclusive features on Twitter. Our data partners generally purchase
licenses to access all or a portion of our data for a fixed period. We recognize
data licensing revenue as our data partners consume and benefit from their use
of the licensed data. "Subscription and Other Revenue" includes revenue from our
mobile advertising exchange services through our MoPub exchange until the
completion of its sale on January 1, 2022.

                                    Three Months Ended June 30,                                                              Six Months Ended June 30,
                                     2022                     2021              $ Change            % Change                 2022                   2021              $ Change            % Change
                                          (in thousands)                                                                           (in thousands)
Advertising services        $     1,076,003              $ 1,053,411          $  22,592                     2  %       $    2,182,581          $ 1,952,251          $ 230,330                    12  %
Subscription and other              100,657                  137,016            (36,359)                  (27) %              195,063              274,194            (79,131)                  (29) %
Total revenue               $     1,176,660              $ 1,190,427          $ (13,767)                   (1) %       $    2,377,644          $ 2,226,445          $ 151,199                     7  %

Revenue in the three months ended June 30, 2022 decreased by $13.8 millionor 1%, and revenue in the six months ended June 30, 2022 increased by $151.2 millionor 7%, compared to the three and six months ended June 30, 2021respectively.


Advertising revenue in the three months ended June 30, 2022 increased by $22.6
million, or 2%, and advertising revenue in the six months ended June 30, 2022
increased by $230.3 million, or 12%, compared to the three and six months ended
June 30, 2021, respectively. The increases in advertising revenue in the three
and six months ended June 30, 2022 reflect ongoing product improvements,
advertising industry headwinds associated with the macroeconomic environment and
uncertainty related to the Merger.

The increase in advertising revenue in the three months ended June 30, 2022 was
attributable to an increase in the number of ad engagements of 7%, partially
offset by a decrease in cost per ad engagement of 5%, compared to the same
period in 2021. The increase in advertising revenue in the six months ended
June 30, 2022 was attributable to an increase in the number of ad engagements of
9% and an increase in cost per ad engagement of 2%, compared to the same period
in 2021. The increase in the number of ad engagements in the three and six
months ended June 30, 2022 was due to our growing audience and increased demand
for video ads on a year-over-year basis, offset in part by a mix shift to lower
funnel ad formats, which generally have lower engagement rates and higher cost
per ad engagement. The decrease in cost per ad engagement in the three months
ended June 30, 2022 compared to the same period in 2021 was primarily driven by
ad impression growth outpacing demand across most ad formats. The increase in
cost per ad engagement in the six months ended June 30, 2022 compared to the
same period in 2021 was primarily driven by a mix shift toward performance
products, which are lower funnel ad formats, and 15-second video views,
partially offset by like-for-like price decreases across most ad formats due to
slow demand growth.

In the three and six months ended June 30, 2022, subscription and other revenue
decreased by 27% and 29%, respectively, compared to the three and six months
ended June 30, 2021. The decrease was primarily attributable to the sale of our
MoPub business to AppLovin on January 1, 2022. MoPub and MoPub Acquire generated
approximately $52.9 million and $104.2 million in revenue in the three and six
months ended June 30, 2021, respectively, the significant majority of which was
reflected in "Subscription and Other Revenue" (previously named "Data Licensing
and Other Revenue").

In the near term, we continue to expect our revenues to be impacted by headwinds
associated with the macroeconomic environment and uncertainty related to the
Merger.


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cost of revenue


Cost of revenue includes infrastructure costs, revenue share expenses,
amortization of acquired intangible assets, amortization of capitalized labor
costs for internally developed software, allocated facilities costs, as well as
traffic acquisition costs (TAC). Infrastructure costs consist primarily of data
center costs related to our co-located facilities, which include lease and
hosting costs, related support and maintenance costs and energy and bandwidth
costs, public cloud hosting costs, as well as depreciation of servers and
networking equipment; and personnel-related costs, including salaries, benefits
and stock-based compensation, for our operations teams. TAC consists of costs we
incur with third parties in connection with the sale to advertisers of our
advertising products that we place on third-party publishers' websites, and
applications or other offerings collectively resulting from acquisitions.
Certain elements of our cost of revenue are fixed and cannot be quickly reduced
in the near term in response to market conditions.

                            Three Months Ended June 30,                                                          Six Months Ended June 30,
                              2022                  2021             $ Change            % Change                 2022                  2021             $ Change            % Change
                                   (in thousands)                                                                      (in thousands)
Cost of revenue         $     540,676           $ 416,932          $ 123,744                    30  %       $    1,048,126          $ 797,940          $ 250,186                    31  %
Cost of revenue as a               46   %              35  %                                                            44  %              36  %
percentage of revenue



In the three months ended June 30, 2022, cost of revenue increased by $123.7
million compared to the three months ended June 30, 2021. The increase was
attributable to a $62.0 million increase in infrastructure costs, a $34.3
million increase in depreciation and amortization expense, and a $27.4 million
increase driven primarily by revenue share expenses and personnel-related costs
due to an increase in employee headcount.

In the six months ended June 30, 2022cost of revenue increased by $250.2 million compared to the six months ended June 30, 2021. The increase was attributable to a $115.6 million increase in infrastructure costs, a $74.4 million increase driven primarily by revenue share expenses and personnel-related costs due to an increase in employee headcount, and a $60.2 million increase in depreciation and amortization expense.


We plan to continue to scale the capacity and enhance the capability and
reliability of our infrastructure to support mDAU growth and increased activity
on our platform. We expect that cost of revenue will vary as a percentage of
revenue over time.

Research and Development

Research and development expenses consist primarily of personnel-related costs,
including salaries, benefits and stock-based compensation, for our engineers and
other employees engaged in the research and development of our products and
services. In addition, research and development expenses include amortization of
acquired intangible assets, allocated facilities costs, and other supporting
overhead costs.
                        Three Months Ended June 30,                                                            Six Months Ended June 30,
                          2022                  2021             $ Change            % Change                 2022                     2021             $ Change             % Change
                               (in thousands)                                                                       (in thousands)
Research and
development         $     454,859           $ 299,859          $ 155,000                    52  %       $    826,554               $ 550,568          $ 275,986                     50  %
Research and                   39   %              25  %                                                          35   %                  25  %
development as a
percentage of
revenue


In the three months ended June 30, 2022, research and development expenses
increased by $155.0 million compared to the three months ended June 30, 2021.
The increase was driven by a $100.2 million increase in personnel-related costs
mainly driven by an increase in employee headcount as we continued to invest in
engineering, product, design, and research. Personnel-related costs included
$13.1 million of severance-related costs incurred in the second quarter of 2022.
The increase in research and development expenses was also driven by a $20.3
million net increase in facilities costs and other administrative expenses and a
$34.5 million decrease in the capitalization of costs associated with developing
software for internal use due to reprioritization efforts.

In the six months ended June 30, 2022, research and development expenses
increased by $276.0 million compared to the six months ended June 30, 2021. The
increase was driven by a $217.2 million increase in personnel-related costs
mainly driven by an increase in employee headcount as we continued to invest in
engineering, product, design, and research. Personnel-related costs included
$13.1 million of severance-related costs incurred in the second quarter of 2022.
The increases in research and development expenses were also driven by a $36.0
million increase in facilities costs and other administrative expenses, and a
$22.8 million decrease in the capitalization of costs associated with developing
software for internal use due to reprioritization efforts.

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We are moderating our investments and striving to be even more focused on limiting our investments in engineering, product, design, and research. As we look to manage our cost structure, we will see a reduction in research and development expense growth in the near future. We expect that research and development expenses will vary as a percentage of revenue over time.

Sales and Marketing


Sales and marketing expenses consist primarily of personnel-related costs,
including salaries, commissions, benefits and stock-based compensation for our
employees engaged in sales, sales support, business development and media,
marketing, corporate communications and customer service functions. In addition,
marketing and sales-related expenses also include advertising costs, market
research, trade shows, branding, marketing, public relations costs, amortization
of acquired intangible assets, allocated facilities costs, and other supporting
overhead costs.

                        Three Months Ended June 30,                                                           Six Months Ended June 30,
                          2022                  2021            $ Change            % Change                 2022                     2021            $ Change            % Change
                               (in thousands)                                                                      (in thousands)
Sales and marketing $     308,301           $ 301,902          $  6,399                     2  %       $    608,110               $ 536,494          $ 71,616                    13  %
Sales and marketing            26   %              25  %                                                         26   %                  24  %
as a percentage of
revenue


In the three months ended June 30, 2022, sales and marketing expenses increased
by $6.4 million compared to the three months ended June 30, 2021. The increase
was attributable to a $11.0 million increase in facilities costs and other
administrative expenses and a $11.0 million increase in personnel-related costs,
offset by a $15.6 million decrease in marketing and sales-related expenses. The
increase in personnel-related costs was mainly driven by an increase in employee
headcount, and it included $2.9 million of severance-related costs incurred in
the second quarter of 2022.

In the six months ended June 30, 2022, sales and marketing expenses increased by
$71.6 million compared to the six months ended June 30, 2021. The increase was
attributable to a $46.7 million increase in personnel-related costs, a $21.1
million net increase in facilities costs and other administrative expenses, and
a $3.8 million increase in marketing and sales-related expenses. The increase in
personnel-related costs was mainly driven by an increase in employee headcount,
and it included $2.9 million of severance-related costs incurred in the second
quarter of 2022.

We are moderating our investments and striving to be even more focused on
limiting our investments in sales and marketing. As we look to manage our cost
structure, we will see a reduction in sales and marketing expense growth in the
near future. We expect that sales and marketing expenses will vary as a
percentage of revenue over time.

General and Administrative

General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for our executive, finance, legal, information technology, human resources and other administrative employees. In addition, general and administrative expenses include fees and costs for professional services, including consulting, third-party legal and accounting services and facilities costs and other supporting overhead costs that are not allocated to other departments.

                            Three Months Ended June 30,                                                           Six Months Ended June 30,
                              2022                  2021            $ Change            % Change                 2022                     2021             $ Change            % Change
                                   (in thousands)                                                                      (in thousands)
General and
administrative          $     216,586           $ 141,482          $ 75,104                    53  %       $    366,449               $ 259,009          $ 107,440                    41  %
General and                        18   %              12  %                                                         15   %                  12  %
administrative as a
percentage of revenue


In the three months ended June 30, 2022, general and administrative expenses
increased by $75.1 million compared to the three months ended June 30, 2021. The
increase was primarily attributable to a $49.2 million increase in
personnel-related costs, mainly driven by an increase in employee headcount.
Personnel-related costs included $2.8 million of severance-related costs
incurred in the second quarter of 2022. The increase in general and
administrative expenses was also driven by $33.1 million of transaction expenses
associated with the proposed Merger incurred in the second quarter of 2022 and a
$4.7 million increase in other professional service fees, offset by a $11.9
million decrease in facilities costs and other administrative expenses.


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In the six months ended June 30, 2022, general and administrative expenses
increased by $107.4 million compared to the six months ended June 30, 2021. The
increase was primarily attributable to a $67.1 million increase in
personnel-related costs, mainly driven by an increase in employee headcount.
Personnel-related costs included $2.8 million of severance-related costs
incurred in the second quarter of 2022. The increase in general and
administrative expenses was also driven by $33.1 million of transaction expenses
associated with the proposed Merger incurred in the second quarter of 2022 and a
$9.7 million increase in other professional service fees, offset by a $2.5
million net decrease in facilities costs and other administrative expenses.

We plan to continue to invest in general and administrative functions to ensure
we have an appropriate level of support for our key objectives. We expect that
general and administrative expenses will vary as a percentage of revenue over
time. As we look to manage our cost structure, we will see a reduction in
certain general and administrative expenses; however, in the near term, general
and administrative expenses will likely increase in absolute terms due to costs
related to the Merger and related litigation.

Interest expense


Interest expense consists primarily of interest expense incurred in connection
with the $1.15 billion principal amount of 0.25% convertible senior notes due in
2024 (the 2024 Notes), the $1.0 billion principal amount of 0.375% convertible
senior notes due in 2025 (the 2025 Notes), the $700.0 million principal amount
of 3.875% senior notes due in 2027 (the 2027 Notes), and the $1.0 billion
principal amount of 5.000% senior notes due in 2030 (the 2030 Notes).
                                    Three Months Ended June 30,                                       Six Months Ended June 30,
                                      2022                 2021               % Change                  2022                2021               % Change
                                          (in thousands)                                                    (in thousands)
Interest expense                $       23,342          $ 13,893                      68  %       $      38,786          $ 27,078                      43  %


In the three and six months ended June 30, 2022, interest expense increased by
$9.4 million and $11.7 million compared to the three and six months ended
June 30, 2021, respectively. The increase was primarily attributable to the
issuance of the 2030 Notes in February 2022, offset by the repayment of the 2021
Notes at their maturity in September 2021.

interest income


Interest income is generated from our cash equivalents and short-term
investments net of the related amortization of premium paid on such investments.
                               Three Months Ended June 30,                                     Six Months Ended June 30,
                                  2022              2021               % Change                  2022                2021               % Change
                                      (in thousands)                                                 (in thousands)
Interest income               $  13,595          $  9,202                      48  %       $      21,557          $ 20,203                       7  %


In the three and six months ended June 30, 2022, interest income increased by
$4.4 million and $1.4 million compared to the three and six months ended
June 30, 2021, respectively. The increase was primarily attributable to higher
interest rates.

Other Income (Expense), Net

Other income (expense), net, consists primarily of unrealized foreign exchange
gains and losses due to re-measurement of monetary assets and liabilities
denominated in non-functional currencies and realized foreign exchange gains and
losses on foreign exchange transactions, and gains and losses on investments in
privately-held companies. We expect our foreign exchange gains and losses will
vary depending upon movements in the underlying exchange rates.
                                    Three Months Ended June 30,                                       Six Months Ended June 30,
                                      2022                 2021               % Change                  2022                2021               % Change
                                          (in thousands)                                                    (in thousands)
Other income, net               $       17,616          $ 55,739                     (68) %       $      11,110          $ 55,745                     (80) %


In the three and six months ended June 30, 2022, other income, net decreased by
$38.1 million and $44.6 million compared to the three and six months ended
June 30, 2021, respectively. The change was primarily attributable to a $22.6
million gain on investments in privately-held companies in the three and six
months ended June 30, 2022, compared to a $51.9 million gain on investments in
privately-held companies in the three and six months ended June 30, 2021.

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Gain on Sale of Asset Group

On January 1, 2022we completed the sale of our MoPub business to AppLovin Corporation for $1.05 billion in cash and recorded a pre-tax gain of $970.5 million after closing and transition service costs in the consolidated statements of operations in the six months ended June 30, 2022. The sale of MoPub enables us to focus on key areas of the business, including performance-based advertising, SMB offerings, and commerce initiatives on Twitter.

Provision (Benefit) for Income Taxes


Our provision (benefit) for income taxes consists of federal and state income
taxes in the United States and income taxes in certain foreign jurisdictions.
Our provision (benefit) for income taxes for interim periods has generally been
determined using an estimate of our annual effective tax rate, adjusted for
discrete items, if any. Under certain circumstances where we are unable to make
a reliable estimate of the annual effective tax rate, the accounting guidance
permits the use of the actual effective tax rate for the year-to-date period. We
used this approach for all periods presented because we were unable to
reasonably estimate our annual effective tax rate due to the variability of the
rate as a result of fluctuations in forecasted income and the effects of being
taxed in multiple tax jurisdictions.
                                                Three Months Ended June 30,                 Six Months Ended June 30,
                                                   2022                 2021                 2022                 2021
                                                       (in thousands)                            (in thousands)

Provision (benefit) for income taxes $(65,897) $15,651 $249,470 $ (2,350)



In the three and six months ended June 30, 2022, we recorded a benefit from
income taxes of $65.9 million and a provision for income taxes of $249.5
million, compared to a provision for income taxes of $15.7 million and a benefit
from income taxes of $2.4 million for the three and six months ended June 30,
2021, respectively. The change for the three months ended June 30, 2022 was
primarily due to changes in our income (loss) before income taxes, tax
deductions for stock-based compensation and research and development credits.
The change for the six months ended June 30, 2022 was primarily due to the gain
on the sale of MoPub, described in Note 10 - Sale of Asset Group, which was
subject to higher foreign tax rates and tax on U.S. global intangible low-taxed
income, and other changes in our income (loss) before income taxes.

As of June 30, 2022, we had $997.9 million of deferred tax assets for which we
had not established a valuation allowance. We had a valuation allowance of
$1.43 billion, primarily related to deferred tax assets of a foreign subsidiary,
California and Massachusetts, and U.S. federal unrealized capital losses. We
completed our reassessment of the ability to realize these assets and concluded
that a valuation allowance was not required for the other jurisdictions.
However, if the current macroeconomic environment continues, our forecasted
earnings and expectations may change. This could result in a material non-cash
income tax expense to record an additional valuation allowance to further reduce
our deferred tax assets to the net amount we believe is more-likely-than-not to
be realized. There is a possibility that within the next several quarters,
sufficient negative evidence could become available to reach a conclusion that
an additional valuation allowance is required.

Our effective tax rate could be affected by our jurisdictional mix of income
(loss) before taxes, including our allocation of centrally incurred costs to
foreign jurisdictions, changes in tax rates and tax regulations, the impact of
tax examinations, the impact of business combinations, changes in our corporate
structure, changes in the geographic location of business functions or assets,
tax effects of stock-based compensation, and changes in management's assessment
of the ability to realize deferred tax assets. In addition, the provision is
impacted by deferred income taxes reflecting the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.


                                       45
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Liquidity and Capital Resources

                                                          Six Months Ended June 30,
                                                             2022              2021
                                                               (in thousands)
Net income                                            $        243,279      $ 133,654
Net cash provided by operating activities             $        155,787      $ 772,151
Net cash provided by investing activities             $      1,402,205      

$470,577
Net cash provided by (used in) financing activities $(1,052,446) $898,497



Our principal sources of liquidity are our cash, cash equivalents, and
short-term investments in marketable securities. Our cash equivalents and
marketable securities are invested primarily in short-term fixed income
securities, including government and investment-grade debt securities and money
market funds. In February 2022, we received net proceeds of approximately $988.7
million from the issuance of the 2030 Notes, after deducting the debt issuance
costs.

In March 2020, our Board of Directors authorized a program to repurchase up to
$2.0 billion of our common stock over time (the 2020 Repurchase Program). In
February 2022, our board of directors authorized a $4.0 billion share repurchase
program (the 2022 Repurchase Program), which replaces the 2020 Repurchase
Program. In connection with the 2022 Repurchase Program, on February 10, 2022 we
entered into accelerated share repurchase agreements (the ASR Agreements) to
repurchase $2.0 billion of our common stock. Repurchases may be made from time
to time through open market purchases or through privately negotiated
transactions subject to market conditions, applicable legal requirements and
other relevant factors. The 2022 Repurchase Program does not obligate us to
acquire any particular amount of our common stock and may be suspended at any
time at our discretion. The 2022 Repurchase Program does not have an expiration
date. In the six months ended June 30, 2022, we repurchased 1.9 million shares
for an aggregate amount of $71.5 million under the 2020 Repurchase Program. In
connection with the ASR Agreements, we made a prepayment of $2.0 billion and
received an initial delivery of approximately 37.8 million shares of our common
stock. The ASR Agreements are expected to settle during the third quarter of
2022.

As of June 30, 2022, we had $6.12 billion of cash, cash equivalents and
short-term investments in marketable securities, of which $217.3 million was
held by our foreign subsidiaries. We do not plan to indefinitely reinvest these
funds held by our foreign subsidiaries and have accrued the incremental taxes
due as part of repatriation. We believe that our existing cash, cash equivalents
and short-term investment balances, and our credit facility, together with cash
generated from operations will be sufficient to meet our working capital and
capital expenditure requirements for at least the next 12 months.

Merger Agreement


The Merger Agreement contains customary covenants regarding the conduct of our
business prior to the closing of the Merger and contains certain termination
rights for Twitter and Parent which require us or Parent to pay a termination
fee of $1.0 billion under specified limited circumstances. In addition, pursuant
to the Merger Agreement, we have agreed, subject to certain exceptions, not to
take, authorize, agree or commit to do certain actions outside of the ordinary
course of business, including incurring indebtedness (other than under existing
credit facilities or to replace existing indebtedness) or materially amending
the terms of existing indebtedness. We do not believe that the restrictions in
the Merger Agreement will prevent us from meeting our debt obligations, ongoing
costs of operations, working capital needs, or capital expenditure requirements.

For further discussion about the terms of the Merger Agreement, the Merger and
the litigation relating to the Merger, see the section titled "Pending Merger"
above, the section titled "Proposed Transaction with Elon Musk" in Note 1 -
Summary of Significant Accounting Policies, and the section titled "Legal
Proceedings" in Note 15 - Commitments and Contingencies in the notes to the
consolidated financial statements included in Part I, Item 1 of this Quarterly
Report on Form 10-Q.

Credit Facility

We have a revolving credit agreement with certain lenders which provides for a
$500.0 million revolving unsecured credit facility maturing on August 7, 2023.
We are obligated to pay interest on loans under the credit facility and other
customary fees for a credit facility of this size and type, including an upfront
fee and an unused commitment fee. The interest rate for the credit facility is
determined based on calculations using certain market rates as set forth in the
credit agreement. In addition, the credit facility contains restrictions on
payments including cash payments of dividends. In February 2022, we entered into
an amendment to the revolving credit facility to permit the repurchase of our
common stock in an aggregate amount not to exceed $4.0 billion. As of June 30,
2022, no amounts had been drawn under the credit facility.

Operating Activities


Cash provided by operating activities consists of net income (loss) adjusted for
certain non-cash items including depreciation and amortization, stock-based
compensation, deferred income taxes, impairment of (gain on) on investments in
privately-held companies, gain on the sale of an asset group, as well as the
effect of changes in working capital and other activities. We expect that cash
provided by operating activities will fluctuate in future periods as a result of
a number of factors, including fluctuations in our revenue, increases in
operating expenses and costs related to acquisitions. For additional discussion,
see the section titled "Risk Factors" in Part II, Item 1A of this Quarterly
Report on Form 10-Q.

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Cash provided by operating activities in the six months ended June 30, 2022 was
$155.8 million, a decrease of $616.4 million compared to the six months ended
June 30, 2021. Cash provided by operating activities was driven by net income of
$243.3 million, as adjusted for the exclusion of non-cash expenses and other
adjustments totaling $68.3 million, including a gain on the sale of our MoPub
asset group of $970.5 million, stock-based compensation expense of $459.5
million, depreciation and amortization expense of $333.6 million, and deferred
income taxes of $131.1 million, and the effect of changes in assets and
liabilities, net of asset acquired and liabilities assumed from acquisitions,
that resulted in cash outflows of $19.2 million.

Investing Activities


Our primary investing activities consist of purchases of property and equipment,
particularly purchases of servers and networking equipment, leasehold
improvements for our facilities, purchases and disposals of marketable
securities, strategic investments in privately-held companies, acquisitions of
businesses and other activities.

Cash provided by investing activities in the six months ended June 30, 2022
increased by $931.6 million compared to the six months ended June 30, 2021. The
increase was primarily due to $1.05 billion of proceeds from the sale of our
MoPub asset group, a $521.8 million decrease in purchases of marketable
securities, a $142.7 million decrease in purchases of property and equipment, a
$25.0 million decrease in purchases of investments in privately-held companies,
a $13.6 million decrease in business combinations, an $8.4 million absence of
other investing activities, offset by a $502.2 million decrease in proceeds from
sales of marketable securities, a $318.2 million decrease in proceeds from
maturities of marketable securities, a $7.8 million increase in investments in
the Finance Justice Fund, and a $1.5 million decrease in proceeds from sales of
property and equipment.

Financing Activities

Our primary financing activities consist of issuances of securities, including
common stock issued under our employee stock purchase plan and issuances of our
Notes, repurchases of common stock under our share repurchase program, repayment
of Convertible Notes, payments of finance lease obligations, and stock option
exercises by employees and other service providers.

Cash used in financing activities in the six months ended June 30, 2022 was
$1.05 billion, compared to cash provided by financing activities of $898.5
million in the six months ended June 30, 2021. The change was primarily due to a
$1.58 billion increase in repurchases of common stock, including a $2.0 billion
prepayment we made in connection with accelerated share repurchase agreements in
February 2022, $988.7 million of net proceeds from the issuance of the 2030
Notes net of issuance costs in the six months ended June 30, 2022, compared to
$1.42 billion of net proceeds from the issuance of the 2026 Notes net of
issuance costs, which was reduced by a net cash outflow of $52.3 million for the
purchase of convertible note hedges and sale of warrants entered into in
connection with the issuance of the 2026 Notes in the six months ended June 30,
2021, and a $1.7 million decrease in proceeds from option exercises, offset by a
$9.9 million increase in proceeds from the issuance of shares of stock from the
ESPP, a $2.4 million decrease in tax payments related to net share settlements
of equity awards, and the absence of $0.6 million of payments of finance lease
obligations.

Contractual Obligations

Our principal commitments consist of obligations under the Notes (including
principal and coupon interest), finance and operating leases for equipment,
office space and co-located data center facilities, as well as non-cancelable
contractual commitments. In addition, under the Merger Agreement, we may in
certain circumstances be obligated to pay a termination fee of $1.0 billion.
Refer to Note 6 - Leases; Note 11 - Convertible Notes and Senior Notes; and Note
15 - Commitments and Contingencies in the notes to the consolidated financial
statements under Part I, Item 1 of this Quarterly Report on Form 10-Q for more
details.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements and did not have any such arrangements as of June 30, 2022.

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Critical Accounting Policies and Estimates


We prepare our consolidated financial statements and related notes in accordance
with GAAP. In doing so, we make estimates and assumptions that affect our
reported amounts of assets, liabilities, revenue and expenses, as well as
related disclosure of contingent assets and liabilities. To the extent that
there are material differences between these estimates and actual results, our
financial condition or operating results would be affected. We base our
estimates on past experience and other assumptions that we believe are
reasonable under the circumstances, and we evaluate these estimates on an
ongoing basis. We refer to accounting estimates of this type as critical
accounting policies and estimates. Please refer to "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in Part II,
Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31,
2021 for a more complete discussion of our critical accounting policies and
estimates.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2021.

Recent Accounting Pronouncements


For information with respect to recent accounting pronouncements and the impact
of these pronouncements on our consolidated financial statements, see Note 1 -
Summary of Significant Accounting Policies in the notes to the consolidated
financial statements included in Part I of this Quarterly Report on Form 10-Q.

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