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Twitter Hit by Weak Guidance: Buy the Dip With ETFs?
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The social media space came under pressure on Feb 7 owing to Twitter Inc.’s downbeat guidance. Quarterly earnings for the fourth quarter beat estimates but a weak revenue guidance and probability of increased costs in 2019 vexed investors.
Shares nosedived, losing about 10% in the key trading session on Feb 7.
Results in Detail
Non-GAAP earnings of 31 cents per share outpaced the Zacks Consensus Estimate by 6 cents. The figure soared 63.2% from the year-ago quarter. Revenues of $909 million increased 26% at constant currency (cc) from the year-ago quarter and comfortably surpassed the consensus mark of $869 million.
U.S. revenues (56% of revenues) increased 24% year over year to $505.6 million. International revenues (44.2% of revenues) rose 27% at cc and on a year-over-year basis to $403.2 million.
Average monetizable daily active users (mDAU) were 126 million in the reported quarter, compared with 115 million in the year-ago quarter and 124 million in the previous quarter. Twitter’s average monthly active users (MAUs) totaled 321 million, down from 330 million in the year-ago quarter and 326 million in the preceding quarter.
Inside the Muted Outlook
Twitter expects first-quarter 2019 total revenues between $715 million and $775 million. At mid-point, the guidance is lower than the current Zacks Consensus Estimate of $762.5 billion. Also, the company said that it expects expenses to rise 20% this year.
What Lies Ahead?
The stock belongs to a top-ranked Zacks industry (top 12%) and sector (top 25%). The reason for the projection of higher expenses is initiatives adopted across "health, conversation, revenue product and sales, and platform."
The stock is decently valued with P/E for the forward year at 35x compared with 166.2x P/E of the Internet software market and in line with the peer group multiple of 34.92x. Price/book value of the stock was 3.6x versus 6.4x of the Internet software market and 6.85x multiple of the peer group.
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 concentration risks.
ETFs in Focus
Twitter’s results will likely have a considerable impact on Global X Social Media ETF (SOCL - Free Report) . The company takes about 10.4% of SOCL, holding the third 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. The fund was down 2.9% on Feb 7.
Facebook — the fund’s second holding — came up with huge revenue and earnings beats for its fourth-quarter 2018 results released at January-end. Facebook’s strength could make up for the Twitter’s weakness (read: Facebook Jumps on Solid Q4 Results: ETFs Set to Surge).
Another ETF that will be impacted by Twitter’s earnings is Invesco Dynamic Media ETF . Twitter takes about 5.47% of the fund, which lost about 0.6% on Feb 7. The stock also has 4.51% weight in ARK Innovation ETF (ARKK - Free Report) , which was down 3.3% on the day (see all Technology ETFs here).
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Twitter Hit by Weak Guidance: Buy the Dip With ETFs?
The social media space came under pressure on Feb 7 owing to Twitter Inc.’s downbeat guidance. Quarterly earnings for the fourth quarter beat estimates but a weak revenue guidance and probability of increased costs in 2019 vexed investors.
Shares nosedived, losing about 10% in the key trading session on Feb 7.
Results in Detail
Non-GAAP earnings of 31 cents per share outpaced the Zacks Consensus Estimate by 6 cents. The figure soared 63.2% from the year-ago quarter. Revenues of $909 million increased 26% at constant currency (cc) from the year-ago quarter and comfortably surpassed the consensus mark of $869 million.
U.S. revenues (56% of revenues) increased 24% year over year to $505.6 million. International revenues (44.2% of revenues) rose 27% at cc and on a year-over-year basis to $403.2 million.
Average monetizable daily active users (mDAU) were 126 million in the reported quarter, compared with 115 million in the year-ago quarter and 124 million in the previous quarter. Twitter’s average monthly active users (MAUs) totaled 321 million, down from 330 million in the year-ago quarter and 326 million in the preceding quarter.
Inside the Muted Outlook
Twitter expects first-quarter 2019 total revenues between $715 million and $775 million. At mid-point, the guidance is lower than the current Zacks Consensus Estimate of $762.5 billion. Also, the company said that it expects expenses to rise 20% this year.
What Lies Ahead?
The stock belongs to a top-ranked Zacks industry (top 12%) and sector (top 25%). The reason for the projection of higher expenses is initiatives adopted across "health, conversation, revenue product and sales, and platform."
The stock is decently valued with P/E for the forward year at 35x compared with 166.2x P/E of the Internet software market and in line with the peer group multiple of 34.92x. Price/book value of the stock was 3.6x versus 6.4x of the Internet software market and 6.85x multiple of the peer group.
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 concentration risks.
ETFs in Focus
Twitter’s results will likely have a considerable impact on Global X Social Media ETF (SOCL - Free Report) . The company takes about 10.4% of SOCL, holding the third 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. The fund was down 2.9% on Feb 7.
Facebook — the fund’s second holding — came up with huge revenue and earnings beats for its fourth-quarter 2018 results released at January-end. Facebook’s strength could make up for the Twitter’s weakness (read: Facebook Jumps on Solid Q4 Results: ETFs Set to Surge).
Another ETF that will be impacted by Twitter’s earnings is Invesco Dynamic Media ETF . Twitter takes about 5.47% of the fund, which lost about 0.6% on Feb 7. The stock also has 4.51% weight in ARK Innovation ETF (ARKK - Free Report) , which was down 3.3% on the day (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 >>