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


  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


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


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


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


TWTR: Staying Short, But...

02/07/14 04:55 PM EST



Hesham Shaaban, CFA



Strong growth in owned & leased segment segment drives better Q1 results



  • Results: broad strength around the world based on strong top line RevPAR; owned & leased margins expanded; positive results from acquisitions/transactions; and managed & franchise fee growth
  • Group +9% US managed full service, occupancy levels higher and F&B up mid-single digits.  Total group production +11% in Q1 2014 while production was up MSD in Q2 2013 and HSD in Q3 and Q4 2013.
  • Group revenues booked in the quarter for the year +13% = stronger 2014 pace and 2015 pace +200 bps
  • Transient rate +6%
  • Transactions:
    • Hyatt Regency Orlando ~$55M of EBITDA in 2014, but 1/3rd of earnings in Q1
    • Hyatt San Antonio ~$25M of EBITDA in 2014 and 1/3rd booked in Q1
    • Playa: Hyatt Zeba and Zolara Brands performing well
    • Sale of 10 assets to RLJ, continue to manage - purchased in 2011, rebranded, and recycled
    • Sold 50% JV interest in Hyatt Place Austin $7M of equity invested, received $25M of sale proceeds
    • Recycled Hyatt Regency NO, Waikiki, Seattle...
    • Pending: Hyatt Regency Grand Cypress Orlando for $190M expect to close in Q2, currently consolidated as owned and lease via capital lease, no change to reported EBITDA but Balance Sheet $190 cash, -$190M in debt and change in interest expense.
    • Other: currently marketing 9 full-service hotels
  • Return of capital: active in returning capital to shareholders during Q1 with over $85 million of Class A shares re-purchased since the beginning of the year at a weighted average price of about $52.00 per share. 
  • Ample liquidity and strong balance sheet which will allow Hyatt the flexibility to execute on opportunities
  • Trends: Group healthy, occupancy at record levels, strong ADR growth, F&B spend increasing limited supply.
  • Outside US:  Most regions stabilizing including China, opened 8 hotels in Q1 and 7 were in new markets
  • Q2: variability due to:
    • Easter shift
    • seasonality of 4 hotels in France, during Q1 France hotels were operating below trend by $15M, but in Q2 expect to earn in excess of threshold and will flow thru other income line but not expect.  But base management fees of $7M during Q2.


  • Isolate Easter shift:  Full service managed +250 bps = $3-5M of EBITDA
  • Select service vs. full service:  select service underperformed because of renovations as well as poor weather in the East and Northeast regions during Q1
  • Group:  strength in SF, Orlando, San Antonio, and Chicago while WDC was weak, driven by Easter shift and strong production and minimal renovations impact
  • Currency negative impacts from C$, Mexican Peso and South American currencies
  • Asset recycling: additional hotels beyond 9 announced - remain opportunistic, no plans beyond current 9 listed assets.
  • Playa Resorts:  Q1 EBITDA $13M-15M for 2014, 1/3 in Q1, pleased with performance, 2 add'l hotels rebranded before year-end, early stage of investment, too early for long-term discussions
  • Four French Hotels - renegotiate contact:  no change to contract and structure but having discussions, so volatility to continue
  • Share repurchases - increasing all 2014 repurchase are Class A shares and 10Q will reflect share counts of Class A 42.5M and Class B 112.5M
  • Repurchase authorization - ongoing review, Board will address
  • Capital base - used to invest in business as well as return to shareholders, and currently doing both strategies.
  • Fees: How guide managed vs. franchise fees due to conversions - fees for 50% of the sold hotels moved/will move from managed to franchise and 200 bps of the increase in franchise fees during Q1 (of the 14% increase) are due to this shift in fees
  • Park Hyatt New York:  expect to open in Q3 2014 and will purchase 67% $250M commitment by Hyatt and will finance 50% of price and EBITDA impact negligible in 2014
  • Geographic focus - brand dependent but for
    • Full-service London, Miami, SF, HK, LA, Brand dependent
    • Select: Urban
    • Resorts: Mexico and Caribbean in NA with Playa     Thailand and China
  • Does the EBITDA growth of +14% in Q1 2014 imply a high single digit EBITDA growth for remainder of 2014 -- when compared to the slide during the analyst meeting where the compound annual growth rate in EBITDA for 2014-2016 was illustrated at mid-teens rate? No, should not read into that slide...nor does the slide imply any EBITDA growth rate guidance for the remainder of 2014.
  • $7.5B of asset value of owned hotels - include leased and/or JV assets (investor presentation slide page 88) does not include JVs nor leased hotels, excluded by design due to valuation differences.  


  • Margin improvement and flow through sustainable - strong rate growth in Q1 had significant impact.  Feel good but benefit costs will rise.
  • Asset recycling what does the market look like for full vs. select service? 
    • Buying: looking for unbranded or conversion opportunities in targeted markets.  Deals delayed or deferred are now coming to market, so overall volume very healthy. 
    • Sales side: process take 6-9 months to execute
    • No select service properties currently listed for sale, view as opportunity to expand institutional ownership - i.e., recent sale to RLJ.
    • Deployment back into select service - focused on urban developments
  • Group strategy and room allocation between group/transient; Group 40%-45% of total, group was very strong in Q1 and extremely encouraging for pace and future, as progress expect to see more rate movement, increasing opportunity of Hyatt Regency convention network.  Gov't business today <2% of business but in Q1 segment was up, so after declining occupancy and rate, finally turned higher. 
  • When prefer to sell vs. buy additional hotels - will be active on both sides through the cycle.  From asset and earnings perspective with both buys/sells then match funded, but looking to improve quality, plenty of time remaining in the cycle.
  • Any value to lightening up "owned" EBITDA as cycle progresses - mix will change over time.   
  • What is 2014 pace tracking vs. last quarter - increased 200 bps, similar to one year ago. 
    • Association business steady
    • Corporate increasing and technology (hardware, software, and consulting), manufacturing, pharma, insurance, and other financial services are very strong.


Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.




  • EBITDA:  $145 million
  • Revenues: $713 million
  • EPS: $0.01


  • EBITDA:  $140-145m
    • Includes $8-10m negative due to adverse weather


  • Outlook for I-gaming and I-poker
    • Any headway in making payment processing more fluid and convenient for users? 
  • Promotional environment:  regional markets and LV Locals
  • Initiatives to improve operating margins
  • How much incremental dollars is Penny Lane bringing onto the slot floors?  Will there be other slot refresh initiatives this year? 
  •  What else can be done to narrow the win per slot gap versus the competition?
  • Par-A-Dice struggled in Q1.  Other than adverse weather, anything else going on there?
  • Are you concerned with the topline growth at Kansas Star before the final expansion is complete in early 2015?
  • Borgata continues to positively stand out in the highly competitive AC market. Why?
  • Options for creating shareholder value: REIT conversion, selling assets to REIT
  • April trends indicated soft from PENN and PNK. Thoughts?
  • Any update on Borgata property rebate?



LV Locals: 

  • 2014:  YoY growth in revenue and EBITDA similar to the levels BYD experienced in 2013.

Penny Lane:

  • Penny Lane is now in place at 12 Boyd Gaming properties across the country, and that it's having a positive impact on play across our business.

Development projects:

  • Wilton Rancheria - Early-stage design work is well underway and the Environmental Impact Statement Scoping Report was filed in early February. 
  • Sunrise Sports Entertainment - Florida lawmakers are now actively considering the expansion of casino gaming in key markets across the state and BYD expect to have more clarity on this opportunity in the coming months.

Business Trends:

  • Spending and visitation declined among casual players.
  • Consumers remained cautious throughout the region while play from top-tier customers was solid

NJ I-gaming:

  • Basically no contribution, positive or negative, from online gaming for the full-year.
  • While it is early, we are extremely pleased with the progress we have made so far.
  • Through January, Borgata has established itself as a clear market leader with nearly one-third of the total market.

Non-gaming spending:

  • Hotel rooms will further be benefited in March. There is an awful lot going on in this town in March, a very good convention calendar that's been written about.


  • Minimal EBITDA growth in 2014
  • Successful refinement throughout our business. The changes BYD made last year to the Hawaiian marketing programs are continuing to have a positive impact on business volumes.  And BYD's Hawaiian charter service is now running much more efficiently with improved yields.
  • Downtown has shown encouraging strength so far in the first quarter, and remain optimistic about the direction of our Downtown business in 2014.


  • Year-over-year growth on a quarterly basis, beginning in the second half of this year.


  • 2014 EBITDA similar to 2013 excluding the negative $5 million impact of low hold and weather we experienced in December.
  • Looking at 1Q, weather continued to have a negative impact on Borgata's land-based business.  Have seen a significant uptick in the promotional activity throughout the Atlantic City market, although Borgata has not needed to match this increased spending.

Delta Downs:

  • Delta Downs is clearly benefiting from an excellent location near the thriving Houston market and it is outperforming the competition.


  • BYD acquired the IP in the low-$30 million EBITDA range and have driven it up significantly higher... is clearly an asset that is clearly number two in the Biloxi market, if by some standards not tied for number one.

AC property tax ruling:

  • Continue to feel the impact of higher property taxes which reduced EBITDA by $2.1 million during the fourth quarter and $8.4 million for the full-year.  While BYD did receive favorable property tax ruling in October, that ruling is now being appealed by the city and BYD must continue to pay taxes at a higher amount until that process is complete.  Expect to reach a resolution by the end of the year.


  • Will be lapping the opening of new competitor in the Shreveport market in the June time frame. Beyond that, there really won't be any other cannibalization as a result of new property openings until Lake Charles market. 

2014 capex:

  • Budgeting maintenance capital expenditures to be approximately $125 million on a consolidated basis. This amount includes approximately $15 million at Peninsula and $25 million at Borgata. 
  • In addition to maintenance capital, expect the final phase of the Kansas Star expansion to cost approximately $20 million and be completed in early 2015

2014 non-operating items:

  • Corp expense:  $55m
    • This number is higher than 2013 levels because of several corporate initiatives BYD is undertaking.  Do not expect this level of corporate expense to continue beyond 2014.
  • Total D&A:  $255-260m
    • Boyd:  $130m
    • Peninsula:  $72m
    • Borgata:  $55m
  • Interest expense:  $300m (assumes modest increase in 2014 LIBOR)
  • Deferred rent: $4m
  • Pre-opening expense: $5m
  • Share-based compensation: $16m
  • Shares out: 110m

Daily Trading Ranges

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Hard to poke holes in the quarter and conference call commentary. Maybe incentive fees could've been a little better but overall MAR is executing operationally and from a shareholder perspective.




  • Past few weeks sensing tremendous optimism across all markets, all segments, all geographies
  • 30% of Industry big box (more than 1,000 rooms) development is under MAR brands  
  • Overall supply growth in NA market remains low due to tight financing, high construction costs, but CMBS market opening and banks interested in lending to limited service hotels due to higher  yields.  
  • 65% of NA pipeline hotels outside top 25 markets
  • AC hotels: 28 approved in US and 40 under discussion
  • Moxy: 12 in pipeline, first will open later this year, expect >100 Moxy assets in 10 years
  • Building three hotels in Brazil should be $150-$200 million over next three to four years with recycling sometime after opening.
  • Mexico: strong capital markets and new lodging REITs stimulating limited service development and MAR has 23 hotel open and 18 in the pipeline
  • Asia/Pacific: signed more new build upper upscale and luxury rooms in 2013 that any competitor, and 2014 looks just a strong
  • India: full-service difficult, Courtyard and Fairfield brands have 4,000 rooms in development
  • China: 25,000 rooms open, 35,000 in development pipeline
  • ME/Africa: Protea acquisition closed
  • 2013: 67,000 rooms signed world-wide and expect 2014 another record signing year
  • 45m Marriott Reward members = ~50% of worldwide occupancy
  • 40% of bookings from mobile devices
  • 6 year, 800 hotel Courtyard renovation which is increasing RevPAR and contributing to profitability
  • Marriott introduced new service initiatives for meetings business, new marketing campaign, and renovating guestrooms
  • Better transient booking trends and worldwide RevPAR = higher 2Q guidance
  • Courtyard: strong transient demand, lobby & room renovations
  • Marriott Brand RevPAR +8% = 300 ADR, cancellation below trend, F&B + 5%, group outperformed competition
  • Marriott brand group RevPAR ~500 bps across North America
  • US Government - demand stabilizing but not upturn yet, reducing Gov't occupancy in many markets
  • International RevPAR results:
    • Caribbean +10%. Mexico +13%, and Resorts +10% based on strong group and cold weather
    • Japan, Indonesia, Oz, Greater China (Shanghai & HK) +7%
    • Europe +4% based on UK +5%, Germany +4%, France -4%
    • Russia -1%
    • Egypt difficult
  • House profit margins +160 bps, despite higher utility costs high due to cold
  • WW House 130 bps
  • total fees +5%, base fees stronger RevPAR and -$2m f(x), constrained by slower NYC, WDC, New Orleas marktes - expect fee growth of low double digit rate
  • G&A lower based on timing items
  • Repurchased 7m shares = 355m during Q1
  • Q2 booking pace modestly higher YoY despite Easter, strength in corporate and leisure
  • Easter shift: added 100 bps to Q1 occupancy but likely -1% in Q2
  • Caribbean/Lat Am: double digit
  • Asia/Pac: mid single
  • Europe, Middle East, Africa, Russia, France & Egypt: low single digit growth
  • Group pace for Marriott during Q4 2013 was +4%, today +5% corporate even stronger
  • Pretea:  will add ~$15M and $7M of depreciation
  • G&A flattish
  • FY 2014 Adj EBITDA +9% to +13%
  • recycle 600-700m from asset sales and loans


  • Why were fees not higher given RevPAR results?  Incentive fees are lumpy, greater weakness in WDC and NY which are strong fee earning markets, new supply in NYC negatively impacting results  Thailand RevPAR -20% in Q1 and impacted fees
  • Edition construction costs - believe fully reflective
  • Potential for big acquisitions to jump start AC, Edition, Proteia?  Today pleased with new platforms for growth and outlook - open Miami and Clock Tower in NTM, more hotels in pipeline.  AC brand is sizzling in the US (30 signed and 40 in discussion) will see higher level of activity.  Pleased with Protea, Gaylord and AC - each is own story.  Maybe a little early in Spain.  Protea good because 10x multiple and will add accretion impact but also leadership team will bring accelerated growth across Africa.
  • Wintrop won't impact MAR.
  • Protea leased assets, look to sell over time - prefer management contracts vs. leases because leases difficult to recycle, do not prefer lease transactions but like variable and revenue share lease with Protea.
  • Development in Brazil on/off balance sheet - 3 assets on MAR balance sheet. Seed select service in Sao Paolo (Fairfield) and Rio de Janiero (2 Courtyards) and already signed several new management contracts.
  • Brazil - Rio is perplexing...5 hotels open, 10 hotels in pipeline, not seeing strength for limited service brands, akin to investing in new growth platforms
  • Share repurchase - scorecard: in the middle of the cycle, not the end.  No comments on 15/16 guidance, but drivers of growth - revpar, unit growth, G&A, great capital leverage to continue for next several years, thus convinced stock is reasonably priced and a strong buy today vs. outlook and macro environment.
  • Government comps - see easier comps due to actions in 2013 to cut government groups during Q2, Q3 and Q4 in 2013.  Stayed and Paid in 2014 will be +10% in 2H14.  Total Gov't volume -15% as hotels yielding out Govt for higher ADR Transient.
  • Group booking trends for Q4 2014 - seeing group booking trends higher, up 5% vs. 2013 for 2013.  In Q4 2014 seeing flat, so first 3 Qtrs of 2013 trending +8%.
  • Incremental group demand, what is greater confidence by group - broad optimism.  In the US, confidence about economic recovery vs. last few years.  Less Gov't & fiscal overhang.  Corporations looking to invest in business via meetings, travel, etc.  
  • Marriott Brand Group share is up 500-600 bps, taking significant group share.
  • Raising Dividend - Board meeting in May, historically raise dividend in line with growth...payout ratio 30-35% of earnings.  Not anticipate a meaningful shift of capital from share repurchase to higher dividends.  Shareholders PREFER consistent return of capital to shareholders but mixed view on methodology and mix.
  • Group vs. Transient and RevPAR performance - 1 year ago discussion of secular shift away from group to transient, MAR rejected those conversations, but today evidence illustrates Group is recovering as it has in the past -- but slightly more modest recovery because RevPAR recovery has been slower this time.  Group doesn't outperform until Transient weakens.  Want to see Transient continue to outperform.
  • NYC vs North America - supply related and is there a segment difference?   For MAR, Q1 2014 RevPAR 1%.  Difficult comps to Hurricane Sandy and potentially some negative weather, surprised how little impact weather impacted Nationwide RevPAR but negative Chicago and NYC RevPAR.   NYC supply growth of 10% and occupancy still runs 85%.
  • Where in the cycle re-evaluate share repurchase as well as leveraging cash flow and ebitda over the cycle - historical view of holding cash (actually increases WACC) and thus view of buying stock into cycle downturn (2007), entered downturn at 3.5x debt/ebitda, was 5x in 09 and stock was $11 but didn't have powder to buyback the stock.  General approach increase nominal debt but not leverage levels 3x - 3.25x but sensible to bring down to 2.75x - 3x
  • When will limited service developments open the US - 65% of signings today outside top 25 MSAs; new limited service supply open in 2015 but not seeing full-service supply growth
  • Close Miami Edition sale, shortly after opening in Q4 2014, then close on sale of NYC Edition ClockTower in Q1 2015.
  • How frame Rate vs. Occupancy for remainder of 2014 -  occupancy higher in Q1 due to Easter shift, interested and focused in driving rate.
  • Managed Hotel Incentive Fees - where expect end of 2014.. inching or hockey-stick higher?  Good start with 300 bps increase in Q1, expect IFs to continue to grow, not yet growing 20% - still a challenging line to guide.  Expect low double digit growth rate for 2014 full year.  More comments at September analyst meeting.
  • Group commitment to higher F&B spend - Q1 actual +8% vs. RevPAR, Group F&B +10% and Outlets +7%.  F&B budgets finalized just prior to group arrival.
  • Operating margin growth of 160 bps in line with plan and how view for remainder of year - Q1 margin performance modestly better than forecast despite higher utility costs in Northeast, still keenly focused on expanding margins.


Takeaway: This cartoon was initially posted on Monday April 28, 2014.

U.S. GDP just posted its smallest gain in three years, growing at only a 0.1% annual pace in Q1. Hasn't Hedgeye been warning about this?


FLASHBACK: Icebergs  - GDP cartoon 04.28.2014

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