TWTR: Re-Shorting

Takeaway: We got too cute on timing when we covered. 1Q14 upside & 2014 guidance raise weren't enough. Rising consensus estimates = precarious setup

SUMMARY BULLETS

  1. 1Q14 Review: Solid quarter, 2Q14 guidance above consensus, 2014 guidance raised in excess of 1Q14 beat

  2. Beat, Raise, Sell-Off (Again): We covered our short on expected 1Q14 upside. That was a mistake; street was expecting 1Q14 upside comparable to what TWTR produced in 4Q13.
  3. It Only Gets Tougher From Here: Consensus estimates are rising, and the street expects upside on top of that. That becomes less likely in 2H14/2015 when the monetization tailwind slows.

  4. $25 Stock?: We're expecting revenues to slow materially in 2H14, and particularly 2015 (43% vs. consensus of 61%).  Based on our growth-adjusted P/S analysis, TWTR shouldn't be trading above $25

  5. Supporting Research: See notes below for supporting detail on our short thesis.  We are in the process of refreshing or slide deck.

1Q14 Review

  • Revenues: $250.5M vs. consensus of $241.5.  1Q14 Ad revenue growth (y/y%) accelerated vs. 4Q13 both globally (up 125% vs. 121%, respectively) and in the US (106% vs. 97%)
  • User Growth: US was up 19% y/y vs. 20% in 4Q13.  Global up 25% vs. 30% in 4Q13.  Int’l slowed to 27% in 1Q14 vs. 34% last quarter.
  • Engagement (timeline views/user): Decelerated globally, decline moderated in the US (-2% vs. -5% in 4Q13), deteriorated internationally (-10% vs. -2%).  
  • Monetization (ad revenue/timeline view): Accelerated sharply globally (96% vs. 76%), mostly driven by int’l, but US improved as well (78% vs. 73%).  
  • Guidance: 2Q14 revenue of $270-$280 vs. consensus of $272.  Raised 2014 range by $50M to $1.20B-$1.25B, ahead of the beat on 1Q guidance

BEAT, RAISE...SELL-OFF (AGAIN)

We covered our Short prior to the 1Q14 release.  We believed street expectations had rebased following the sell-off on its 4Q13 release.  Given the upside we saw to 1Q14 consensus estimates, and that our bearish fundamental view centers around 2H14/2015, we decided to get out of the way looking to reshort at a higher price.  That was a mistake.

 

Despite a very solid quarter and 2014 guidance raise, the stock is down 10% today.  We suspect this is tied to the smaller magnitude of the 1Q14 beat and guidance raise in relation to what TWTR produced in 4Q13.

 

TWTR: Re-Shorting - TWTR   Expectations

IT ONLY GETS TOUGHER FROM HERE

TWTR is in a precarious setup.  Every time TWTR beats estimates, consensus estimates move higher.   However, street expectations differ from consensus: TWTR is expected to continue to beat those increasing estimates, and guide higher.  

 

TWTR: Re-Shorting - TWTR   Consensus

 

We continue to expect a dramatic slowdown in revenue growth into 2H14, and particularly 2015 (see notes below for supporting detail).  Our bearish fundamental view vs. rising consensus & street expectations suggest the setup will only get worse from here.  

 

In short, the hurdle keeps moving higher while its growth prospects get progressively worse.

 

TWTR: Re-Shorting - TWTR   Hedgeye vs. Consensus

$25 Stock?

TWTR is trading at a premium to its Social Media peers given heightened growth expectations.  Consensus is assuming 61% revenue growth in 2015.  We're expecting 43% growth as its monetization tailwind slows precipitously into 2H14 and 2015.  

 

In turn, TWTR's 2015 growth profile is similar to what the street is assuming for YELP, which trades at 7.9x 2015 revenues vs. the 10.7x that TWTR is trading at today.  That said, TWTR shouldn't be trading at any more than 8x 2015 revenues, which translates to a $25 stock; and that assumes the Social Media space can maintain its lofty P/S multiples.

 

TWTR: Re-Shorting - Social Media Valuations  4 30 14

SUPPORTING RESEARCH

See the notes below for detail on our short thesis.  If you would like to see our TWTR short deck (update in progress), or have any questions, please let us know.

 

 

TWTR: Covering Short...For Now

03/10/14 11:41 AM EDT

http://app.hedgeye.com/feed_items/34021

 

TWTR: Staying Short, But...

02/07/14 04:55 PM EST

http://app.hedgeye.com/feed_items/33438

 

 

Hesham Shaaban, CFA

@HedgeyeInternet



7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more