Twitter Tanks Post Q3: ETFs to Watch
Things are not going smoothly for Twitter (TWTR) as the social networking site failed to prompt investor enthusiasm with any of its earnings releases this year. After reporting a weak Q1, a soft guidance had taken the shine out of the company’s Q2 and Q3 (read: Twitter Tumbles Post Q2 Earnings, Puts These ETFs in Focus).
Most recently, on October 27, Twitter came up with its Q3 results after market. This time, the company beat on the top and the bottom lines and should have ideally seen a lift in its share price. But a deceleration in monthly user growth and weak revenue forecast led investors to excuse themselves from the Twitter stock. As a result, a downward drift in its share price was noticed after hours.
Q3 in Detail
The company’s third-quarter 2015 adjusted loss per share (including stock-based compensation expense) of 15 cents was narrower than the Zacks Consensus Estimate of 25 cents of loss. Excluding the stock-based compensation expense, the company earned $0.10 earnings per share on a pro forma basis, considerably up from the year-ago level.
Revenues of $569 million in the quarter beat the Zacks Consensus Estimate of $561 million and increased 58% from the year-ago period. Absent the impact of year-over-year changes in foreign exchange rates, revenues would have grown 64%. Growth in international revenues remained robust at about 65%. Notably, international revenues accounted for one-third of total revenue.
The company finished the quarter with an average 320 million monthly active users (MAU), up 11% year over year and 16 million higher sequentially. However, user growth fell short of analysts’ estimate of 324 million.
However, the real blow came in the form of guidance. Twitter anticipates its total revenue for the ongoing fourth quarter to range between $695 million and $710 million, way below the Zacks Consensus Estimate which is pegged at $749 million.
Market Impact
The soft MAU metric and sub-par guidance dampened investors’ mood as the stock saw a steep sell-off, plunging about 12.7% after hours. The stock advanced over 24% in the last one month (as of October 27, 2015) on euphoria over the appointment of CEO Jack Dorsey in October. However, year to date, the stock is still down 12.6%.
Notably, the company is striving to rebound and adopt several sales-building measures. This month, the company launched a new feature “Moments” (which will make Twitter experience better for users) and “Brand Hub”, an analytics tool designed to help advertisers “understand their brand’s share of conversation, key audiences, and trends about their brand’s conversation” across the platform in real time. These efforts may pay off in a few quarters.
So investors can consider playing this dip by investing in Twitter. Though the stock carries a Zacks ETF Rank #3 (Hold), it is a great growth and momentum play with Zacks Style Scores of ‘A’. But the stock underperforms on the Value score with an ‘F’ rating.
However, many may view this as a risky bet, and can thus opt for a basket or ETF approach. Notably, the ETF route will help investors to mitigate one company’s average performance with the other company’s stellar results and lower company-specific concentration risks.
Twitter does not have a sizable exposure in the overall ETF world with only four ETFs – Renaissance IPO ETF (IPO), PowerShares NASDAQ Internet Portfolio (PNQI) , Global X Social Media Index ETF (SOCL) and ARK Web x.0 ETF (ARKW) – having major exposure of 7.09%, 4.11%, 3.11% and 2.76%, respectively, at present. Below, we have discussed these four funds in detail:
IPO in Focus
IPO – as the ticker suggests – targets initial public offerings in the U.S. markets for its exposure. The fund holds the newly listed companies for a maximum of two years and can add important firms in as little as five days after their debut. Since TWTR is still a new candidate in the market, it has easily found a place in IPO (read: ETFs to Ride on PayPal Growth Story).
Holding 69 securities in its basket, IPO has amassed an asset base of about $22.6 million. IPO charges 60 bps in fees. Twitter takes the second position in the fund. Year to date, the fund is down over 5.45%.
PNQI in Focus
This 94-holding product has about $223.2 million in assets. Twitter is the fund’s seventh holding. Internet software and services make up about 57% of the portfolio, while Internet Retail constitutes about 38% of the fund. PNQI is up about 16.2% year to date. PNQI has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: Amazing Q3 at Amazon: ETFs to Benefit).
SOCL in Focus
SOCL focuses on global companies engaged in some aspect of the social media industry. The fund tracks Solactive Social Media Index and invests $76.7 million of assets in 32 holdings. Twitter takes the thirteen spot in the fund with 3.11% share. SOCL has company-specific concentration risk, putting more than 60% of investments in its top 10 holdings. The product charges 65 bps in annual fees. SOCL is up about 6.2% so far this year (as of October 27, 2015).
ARKW in Focus
This actively managed fund holds about 50 stocks in its basket. Twitter takes the nineteenth position in the fund with about 2.76% exposure. The ETF has AUM of $12.5 million. The product charges 95 bps in annual fees and is up 9.4% so far this year.
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TWITTER INC (TWTR): Free Stock Analysis Report
RENAIS-IPO ETF (IPO): ETF Research Reports
ARK- WEB XO ETF (ARKW): ETF Research Reports
PWRSH-ND INTRNT (PNQI): ETF Research Reports
GLBL-X SOCL MDA (SOCL): ETF Research Reports
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