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Twitter Surges Ahead of Earnings: What's in Store for ETFs?

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The social media space celebrated Twitter Inc.’s (TWTR - Free Report) likely surge in user growth on Apr 22. Shares of the short-messaging services company jumped 10.45% in the key trading session as the site was down for parts of the United States, Europe and Japan at the start of the week. The site was flashing “over capacity” message, which has been taken by investors as a hint of solid user base.

In fourth-quarter 2019, Twitter recorded the fastest quarterly growth (21%) in monetizable daily active users (mDAU), with the metric touching the highest level. Average mDAU was 152 million in Q4 compared with 126 million in the year-ago quarter and 145 million in the previous quarter. The company’s success in providing relevant content to people’s Home timelines and notifications had contributed to mDAU growth.

In any case, Twitter is a stay-at-home stock as coronavirus-led lockdowns are leading people to resort to internet a lot. Another social media stock Snap’s (SNAP - Free Report) share price gains of 36.74% on Apr 22 probably also acted as a cornerstone for the whole industry. Snapchat witnessed a spike in user growth amid Covid-19. User growth helped Snap’s revenues surge a solid 44% in Q1 (read: Amid the Tech Slump, Internet ETFs Most Resilient to Virus).

What Lies for Twitter's Q1 Earnings?

The Zacks Rank #3 (Hold) stock is about to report on Apr 30 before market open. The stock comes from a favorable Zacks industry (placed at the top 23% of total 250+ industries in the Zacks universe).

However, Twitter has a negative Earnings ESP of 12.16% with Zacks Consensus Estimate and Most Accurate Estimate being 12 cents and 11 cents, respectively. Negative ESP suggests that analysts have recently become bearish on the company's earnings prospects.

Note that J.P. Morgan analyst Doug Anmuth slashed his rating on Twitter to neutral from overweight in mid-April. "Twitter's near-term revenue decline could be steeper than for others given ad challenges coming into the crisis, heavy dependency on product launches/events/sports, and high exposure to brand advertising."

In late March, Twitter withdrew its revenue and profit forecast for the first quarter, to reflect the likely impact of the decline in advertiser demand.  In short, while user growth is a positive, ad challenges could pose a threat amid the pandemic. Let’s see what takes an upper hand in Twitter’s upcoming earnings.

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 6.97% of SOCL, holding the fifth position. Snap takes the fourth spot with 7.59% weight. 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 risks, putting more than 60% investments in its top 10 holdings. At the current level, SOCL carries a Zacks ETF Rank #2 (Buy) with a High-risk outlook. The fund gained 5.2% on Apr 22.

Apart from the social media ETF, Twitter has heavy exposure (about 10%) to the index of MicroSectors FANG+ ETN (FNGS - Free Report) . The product gained 3.6% on Apr 22. Yet another ETF that will be influenced by Twitter’s earnings is Invesco Dynamic Media ETF (PBS - Free Report) . Snap and Twitter take about 5.23% and 4.81% of the fund, respectively. The product gained about 2.7% on Apr 33.

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