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Log In to Social Media ETFs on Twitter's Strength

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Defying the broader selloff, Twitter’s shares are on a tear courtesy of its upbeat earnings. On February 8, the company reported fourth-quarter 2017 non-GAAP earnings per share of 19 cents, which came ahead of the Zacks Consensus Estimate of 14 cents and increased 72.7% year over year.

Revenues of $732 million increased 2% from the year-ago quarter and beat the consensus mark of $690 million. In fourth-quarter 2017, Twitter’s adjusted monthly average users (MAUs) totaled 330 million, flat sequentially but up 4% on a year-over-year basis.

The increase was driven by a 2% rise in U.S. MAUs and a 4% increase in international MAUs.  However, on a sequential basis, U.S. MAUs decreased 1 million. Daily average users (DAUs) were up 12% year over year, thanks to double-digit growth in five out of the top 10 global markets.

Advertising revenues were up a marginal 1% in the quarter to $644 million. Ad engagements increased 75% year over year. Cost per ad engagement was down 42%, thanks to the shift to auto-play video, which has a lower cost-per-view compared to click-to-play. Video ads continue to be the key driver.  By channel, brand marketing continues to be the primary contributor to the company’s revenues.

Market Impact

Signs of improvement in Twitter earnings scorecard boosted investor sentiment as the stock added about 17.1% in the last two days, reflecting the turnaround in earnings. Twitter has a Zacks Rank #1 (Strong Buy) at the time of writing.

The stock is a good growth play with a Zacks Style Score of A, but lacks value quotient as indicated by the score of F. Overall, there is a high chance that the Twitter stock may perform well in the coming trading sessions, given its revival (see all technology ETFs here).

How Will Social Media ETF React Ahead?

Twitter’s results make it important for us to have a look at the social media ETF Global X Social Media ETF (SOCL - Free Report) . Twitter takes about 14.2% of SOCL, holding the top position. As a result, the company’s results are crucial to the entire social media sector. The fund was up more than 2.4% on Feb 9 thanks to Twitter’s results and a market rebound.

The product charges 65 bps in annual fees. SOCL has company-specific concentration risk, putting more than 60% investments in its top 10 holdings. At the current level, SOCL carries a Zacks ETF Rank #3 (Hold) with a High-risk outlook (read: 5 Hottest Tech ETFs of 2017).

However, not only Twitter, the fund is receiving a tailwind from Facebook too, which reported robust fourth-quarter 2017 results, smashing our top and bottom-line estimates on its booming mobile advertising business (read: Facebook ETFs to Surge on Q4 Earnings Beat).

Investors should also note that Twitter shares occupy about 5.4% in ARK Innovation ETF (ARKK - Free Report) . The fund charges 75 bps in fees and was up about 0.7% on Feb 9.

The in-focus Twitter takes the third spot of the fund ARK Web x.0 ETF (ARKW - Free Report) with about 5.23% exposure. The fund charges 75 bps in fees. The social-media company takes about 3.74% of First Trust Dow Jones Internet Index Fund (FDN - Free Report) .

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