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The social media space is in bad shape with Twitter Inc.’s mixed second-quarter 2018 earnings before market open on Jul 27. Twitter’s quarterly earnings were in line with estimates and revenues beat the same but what mainly vexed investors was an unexpected decline in monthly average users (MAU) and weak guidance.
Shares nosedived, losing about 20.8% in the key trading session on Jul 27, marking the biggest one-day plunge since 2016.
Results in Detail
Net earnings of 17 cents per share matched the Zacks Consensus Estimate and represented a rise of 112% year over year. Revenues of $711.0 billion (up 24% year over year) exceeded the consensus of $700.0 billion.
Reuters noted that the FIFA World Cup, video ads and rising international ad revenue led to the surge in revenues. The World Cup contributed as much as $30 million of revenues.
There has been 11% growth in global daily active users but monthly average users declined from 336 million in Q1 to 335 million in Q2. Twitter indicated that its monthly active users will keep falling further as it deletes more pretentious accounts.
Per Reuters, the company noted that “purging automated and spam accounts had some impact on user metrics in the second quarter, and that it was deciding to prioritize tackling suspicious accounts and reducing hate speech and other abusive content over projects that could attract more users.”
Twitter projects adjusted EBITDA margins in the third quarter to come in below the second quarter, though the social media giant upped its 2018 capital spending forecast.
What Lies Ahead?
The stock belongs to a top-ranked Zacks industry (top 42%) and sector (top 31%). The reason behind the decline MAU appears to be a restructuring effort. Also, Twitter’s shares are overvalued at the current level.
So, gutsy investors can use the recent selloff as a buying point and cautious investors may wait for some time and look for better entry points. The company’s long-term prospects look positive though short-term hurdles exist. If an investor finds it too risky to bet on Twitter now, the ETF route can be taken as the basket approach lowers company-specific concertation risks.
ETFs in Focus
Twitter’s results will likely have a considerable impact on Global X Social Media ETF (SOCL - Free Report) . Twitter takes about 11.69% of SOCL, holding the top position. As a result, the company’s performance is crucial to the entire social media sector.
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. The fund was down 4% on Jul 27 (read: Facebook Slump Drags Down Tech ETFs: Any Winners?).
Another ETF that will be impacted by Twitter’s earnings is Invesco Dynamic Media ETF . Twitter takes about 5.16% of the fund, which lost about 2.2% on Jul 27. The stock also has 5.2% weight in ARK Innovation ETF (ARKK - Free Report) , which was down 3.6% on Jul 27 (see all Technology ETFs here).
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Twitter Thrashed on Falling MAU: ETFs in Focus
The social media space is in bad shape with Twitter Inc.’s mixed second-quarter 2018 earnings before market open on Jul 27. Twitter’s quarterly earnings were in line with estimates and revenues beat the same but what mainly vexed investors was an unexpected decline in monthly average users (MAU) and weak guidance.
Shares nosedived, losing about 20.8% in the key trading session on Jul 27, marking the biggest one-day plunge since 2016.
Results in Detail
Net earnings of 17 cents per share matched the Zacks Consensus Estimate and represented a rise of 112% year over year. Revenues of $711.0 billion (up 24% year over year) exceeded the consensus of $700.0 billion.
Reuters noted that the FIFA World Cup, video ads and rising international ad revenue led to the surge in revenues. The World Cup contributed as much as $30 million of revenues.
There has been 11% growth in global daily active users but monthly average users declined from 336 million in Q1 to 335 million in Q2. Twitter indicated that its monthly active users will keep falling further as it deletes more pretentious accounts.
Per Reuters, the company noted that “purging automated and spam accounts had some impact on user metrics in the second quarter, and that it was deciding to prioritize tackling suspicious accounts and reducing hate speech and other abusive content over projects that could attract more users.”
Twitter projects adjusted EBITDA margins in the third quarter to come in below the second quarter, though the social media giant upped its 2018 capital spending forecast.
What Lies Ahead?
The stock belongs to a top-ranked Zacks industry (top 42%) and sector (top 31%). The reason behind the decline MAU appears to be a restructuring effort. Also, Twitter’s shares are overvalued at the current level.
So, gutsy investors can use the recent selloff as a buying point and cautious investors may wait for some time and look for better entry points. The company’s long-term prospects look positive though short-term hurdles exist. If an investor finds it too risky to bet on Twitter now, the ETF route can be taken as the basket approach lowers company-specific concertation risks.
ETFs in Focus
Twitter’s results will likely have a considerable impact on Global X Social Media ETF (SOCL - Free Report) . Twitter takes about 11.69% of SOCL, holding the top position. As a result, the company’s performance is crucial to the entire social media sector.
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. The fund was down 4% on Jul 27 (read: Facebook Slump Drags Down Tech ETFs: Any Winners?).
Another ETF that will be impacted by Twitter’s earnings is Invesco Dynamic Media ETF . Twitter takes about 5.16% of the fund, which lost about 2.2% on Jul 27. The stock also has 5.2% weight in ARK Innovation ETF (ARKK - Free Report) , which was down 3.6% on Jul 27 (see all Technology ETFs here).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>