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Twitter Tumbles on DAU Miss: Buy the Social Media ETF on Dip?

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Twitter Inc.’s (TWTR - Free Report) first-quarter 2021 adjusted earnings of 16 cents per share increased 45.5% year over year and beat the Zacks Consensus Estimate by 14.3%. Revenues increased 28% year over year to $1.04 billion and beat the Zacks Consensus Estimate by 0.1%.

However, Monetizable Daily Active Users (MDAU) came in slightly short of expectations of 200 million, while Q2 sales guidance came out underwhelming. Shares slumped 15.2% on Apr 30 to reflect these downsides. The company still maintains its objective of doubling revenues by 2023.

Results in Detail

Average monetizable daily active users (mDAU) grew 20% year over year to 199 million. Average mDAU grew 7 million sequentially, reflecting increased retention across new and recently reactivated accounts due to the ongoing impact of product improvements, including continued increases in relevance across notifications, search, Explore, and the Home timeline.

Average U.S. mDAU was 38 million, up 13% from the year-ago quarter and increased 1 million sequentially. Average international mDAU was 162 million, rising 22% year over year and 7 million sequentially.

Topics, launched in fourth-quarter 2019, also drove growth as the company started personalizing Topic recommendations to help new customers find their interests more quickly. This improvement led to 33% of new customers following Topics during sign-up in first-quarter 2021.

Time for Social Media ETF?

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 5% of SOCL, holding the fifth position. The fund lost about 2.7% on Apr 30, reflecting Twitter’s underperformance. Investors should note that SOCL puts 10.79% on Facebook (FB - Free Report) , which has come up with upbeat earnings this season (read: ETFs in Focus Post Solid Facebook Q1 Results).

The fund also puts 8% of its weight in Snap (SNAP - Free Report) , which is known for its mobile camera communication application Snapchat. Snap also jumped materially after reporting its stellar Q1 earnings results (read: ETFs to Benefit as Snap Shares Surge on Stellar Q1 Earnings).

The fund also has presence in Alphabet. Since the fund holds such outperformers in its kitty, investors can use the Twitter-induced selloff as an entry point to SOCL. The product charges 65 bps in annual fees. SOCL has company-specific concentration risk, putting more than 60% investments in its top 10 holdings.

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