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Twitter Soars on Q1 Results: Sign in to Social Media ETF

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The social media space is likely to be on fire post Twitter Inc.’s (TWTR - Free Report) first-quarter 2017 earnings release. The stock soared 7.9% in the key trading session on April 26 as the micro-blogging website beat on both lines and reported more monthly active users than the estimated number. Notably, the social media company has been a drag for long (read: Technology ETFs Set to Rally on Q1 Earnings).

Results in Detail

Twitter’s adjusted loss of 5 cents per share (including stock-based compensation expense) was narrower than the Zacks Consensus Estimate of a loss of 16 cents.

Revenues of $548 million came ahead of the Zacks Consensus Estimate of $512 million but declined 8% year over year.

Average monthly active users (MAU) were 328 million for the quarter, up 6% year over year and 2.8% sequentially. Also, MAU exceeded the expected 321 million.

In the U.S., MAU grew 7% year over year and 4% sequentially. This was a huge improvement if we look at Twitter’s fourth-quarter 2016 performance when MAU was flat sequentially and rose 3% annually.  In the year-ago quarter, both growth rates were flat. Improvement was also noticed in MAU on the international front.

Market Impact

Improvement in MAU and an overall beat boosted investor sentiment as the stock added 7.9% in the key trading session following the release of earnings. The stock also gained about 0.2% after hours.

Year to date (as of April 26, 2017), the stock is down about 2.9%. Last year, the stock gained about 8%. Twitter has a Zacks Rank #3 (Hold) at the time of writing.

The stock is a good growth play with a Zacks Style Score of ‘A,' but lacks value and momentum quotients as indicated by the score of ‘D’ and ‘C’, respectively. Still there is a high chance that Twitter stock may perform well in the coming trading sessions, especially given the Zacks Industry Rank in the top 36%  (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 8.63% of SOCL, holding the third position. As a result, the company’s results are crucial to the entire social media sector. The fund was up over 1% on April 26, the day Twitter came up with Q1 earnings.

The product charges 65 bps in annual fees. The fund is up about 20% so far this year (as of April 26, 2017). 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).

Investors should also note that Twitter shares occupy about 3.10% in ARK Innovation ETF (ARKK - Free Report) . The fund charges 75 bps in fees. ARKK was up about 1.2% on April 26 (read: Amazon Poised to Beat Q1 Earnings: Buy These ETFs).

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