U.S. Markets closed

Twitter Tanks: Is It Time to Log Out of Social Media ETF?

Sanghamitra Saha

The social media space came under pressure on Oct 24 owing to Twitter Inc.’s TWTR Q3 miss on both counts. Shares tumbled 20.8% -- the most in more than a year – in the key trading session on more than eight times elevated volume.

Results in Detail

Twitter reported third-quarter 2019 non-GAAP earnings of 17 cents per share that missed the Zacks Consensus Estimate by three cents and down 19% year over year. Revenues grew 9% year over year to $823.7 million that lagged the Zacks Consensus Estimate of $876 million.

Twitter stated that the top line was weaker than expectation due to product issues and higher-than-expected seasonality. Issues related to its legacy Mobile Application Promotion (MAP) product and problems with certain personalization and data settings affected revenues by more than 3%. Moreover, July and August were significantly weak due to a relatively lighter slate of big events and launches.

Average monetizable daily active users (mDAU) were 145 million in the reported quarter compared with 124 million in the year-ago quarter and 139 million in the previous quarter. Average U.S. mDAU was 30 million compared with 26 million in the year-ago quarter and 29 million in the previous quarter. Moreover, average international mDAU was 115 million compared with 98 million in the year-ago quarter and 110 million in the previous quarter.

Guidance

For fourth-quarter 2019, total revenues are expected between $940 million and $1.01 billion. The Zacks Consensus Estimate for revenues is currently pegged at $821 million. For fiscal 2019, capital expenditures are expected to be at or near the low end of the company’s previous guidance of $550-$600 million. The company’s capital spending was $487 million in the year earlier.

ETFs in Focus

Twitter’s results will likely have a considerable impact on Global X Social Media ETF SOCL. The company takes about 11.88% of SOCL, holding the first position. As a result, the company’s performance is crucial to the entire social media sector (see all technology ETFs here).

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 more than 1.9% on Oct 24.

Facebook FB — the fund’s second holding with about 10.93% exposure – is due to report on Oct 30 after market closes. It has a Zacks Rank #4 (Sell) and an Earnings ESP of 5.01%.

Per our proven model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. So, the case makes social media investing tricky again (read: Facebook Crypto Plan on Rocky Ground: ETFs Under Pressure).

Another ETF that will be impacted by Twitter’s earnings is Invesco Dynamic Media ETF PBS. Twitter takes more than 4% of the fund, which lost about 1.2% on Oct 24.

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 >>

Click to get this free report Facebook, Inc. (FB) : Free Stock Analysis Report Twitter, Inc. (TWTR) : Free Stock Analysis Report Global X Social Media ETF (SOCL): ETF Research Reports Invesco Dynamic Media ETF (PBS): ETF Research Reports To read this article on Zacks.com click here. Zacks Investment Research Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report