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Twitter Tops Yet Tumbles on Weak Guidance: ETFs in Focus

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The social media space should be under watch thanks to Twitter Inc.’s (TWTR - Free Report) first-quarter 2018 earnings release before market open on Apr 25. Twitter beat on both lines, but what vexed investors was the chance of slowing growth ahead.

Shares seesawed, jumping 14% in early trading after the results, then sliding on growth guidance remarks on an analyst call. The stock then slumped as much 7.7% and was down 2.4% at the end of Apr 25.

Results in Detail

The company’s first-quarter 2018 non-GAAP earnings per share of 16 cents beat the Zacks Consensus Estimate of 12 cents. The figure also came in much higher than the year-ago quarter’s 7 cents.

Revenues of $665 million jumped 21% from the year-ago quarter and beat the consensus mark of $609.3 million. Quarterly gains were 27%, after excluding around $23 million impact of the winding down of its TellApart business. However, on a sequential basis, revenues declined 9%.

In first-quarter 2018, Twitter’s adjusted monthly average users (MAUs) totaled 336 million, up 3% on a year-over-year basis and 1.8% sequentially.

Daily average users (DAUs) were up 10% year over year, driven by double-digit growth in five out of the top 10 global markets. However, DAU’s growth compared unfavorably with 12% growth recorded in the fourth quarter and 14% in the third quarter of 2017.

Inside Softer Guidance

The company noted in a letter to its shareholders on Wednesday that it will be difficult to “match last year's growth rates in the second half of this year, and as a result the pace of revenue gains will more resemble those of 2016.”

In any case, hopes were high about Twitter before its earnings release. Analysts started becoming happy about the gradual stability that the company has been attaining. Since the company posted an overall beat in the fourth quarter, expectations about Twitter were high (read: Will Twitter ETFs Be Able to Impress Investors in Q1?).

What Lies Ahead?

The stock comes from a top-ranked Zacks industry (top 37%) and sector (top 31%). Plus, the social media company's emergence in live video and more personalized content appears to have started yielding results.

So, gutsy investors can use the recent dip 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 14.1% 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 (read: 5 Tech Stocks Standing Tall After Month-Long Turmoil).

Another ETF that will be impacted by Twitter’s earnings is AdvisorShares New Tech And Media ETF (FNG - Free Report) . Twitter takes about 4.7% of the fund.

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