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TWTR: Long on Promise, Short on Detail (Investor Day)

Takeaway: The bigger issue remains: the perverse relationship b/w its user & revenue growth. The Street will not accept weakness on either front


  1. COURT THE PASSIVE VISITOR: TWTR gets a lot more passive traffic than its MAU metrics suggest.  Visitors get routed to twitter when clicking a twitter-related link while on another site, but most of these visitors do not interact with twitter past that point.  TWTR is looking to court the passive user by presenting them with a timeline of tweets when that occurs, hoping it will boost their registrations & MAU metrics.
  2. EXPAND PRODUCT PORTFOLIO: There was a greater emphasis on enhancing private chat options.  TWTR also wants to introduce new products to expand its product portfolio, suggesting a greater emphasis on Vine, but no other detail regarding other potential ideas.
  3. ENHANCE DEVELOPER FUNCTIONALITY: TWTR wants to make it easier for developers to interact with the twitter platform.  The rationales is that if developers can build and monetize their third-party applications, TWTR could reach a broader audience.



  1. LONG ON PROMISE, SHORT ON DETAIL: The only real detail came on its efforts to court the passive user.  Outside of that, nothing material.  Remember that FB also experimented with private chat options (Facebook Messenger), then wound up acquiring WhatsApp.  In terms of additional products, we suspect that means acquisitions (TWTR just raised $1.7B in new capital).  Expanding third-party application efforts could have the perverse effect of routing TWTR users away from the platform (same as Tweetdeck did before TWTR acquired it).  In short, we wouldn’t get too excited.
  2. THE BIGGER ISSUES REMAIN: TWTR’s strength over the LTM has been driven primarily by monetization, which we estimate has been driven by surging ad load more than anything else.  We suspect there is a perverse relationship between ad engagements (monetization) and user growth, which suggests that its surging ad load strategy is pressuring user retention.  This relationship creates a tug of war between user and revenue growth; if TWTR experiences any weakness on either front, the street will hammer the stock for it.


TWTR: Long on Promise, Short on Detail (Investor Day) - TWTR   Ad Engagement vs. Pricing 3Q14

TWTR: Long on Promise, Short on Detail (Investor Day) - TWTR   Ad Load vs. US MAUs 3Q14

TWTR: Long on Promise, Short on Detail (Investor Day) - TWTR   HRM vs. Consensus 3Q14


For more detail on our short thesis, see link to our most recent note below.  Let us know if you have any questions, or would like to discuss in more detail.


TWTR: The Story Has Changed

10/28/14 07:13 AM EDT




Hesham Shaaban, CFA



Cartoon of the Day: On the One Hand...

On the one hand, gas prices have dropped for 46 straight days to their lowest level in four years.


On the other hand...


Cartoon of the Day: On the One Hand... - gas price cartoon 11.12.2014

Retail Callouts (11/12): FOSL, KORS, WMT, DKS, AMZN, EBAY

Takeaway: FOSL hits trifecta–beat, algorithm, KORS – with big ROE kicker. WMT’s employee problem is bigger than grocery. Golf sales still in the tank.



Retail Callouts (11/12): FOSL, KORS, WMT, DKS, AMZN, EBAY - 11 12 chart2





FOSL - 3Q14 Earnings


Takeaway - Fossil hit the earnings trifecta this quarter. Not only did it beat the quarter by 8%, but did so by putting up a clean algorithm of +10% sales, +15% net income, and +25% net income. Its SIGMA trajectory swung towards the upper right hand quadrant, which is bullish for gross margins in the upcoming quarter. One thing we particularly liked was how we're starting to see a meaningful diversion between ROE and ROIC for this company. Too many companies that tout improving ROIC trends leave out the fact that they're letting cash build on their balance sheets. FOSL is doing the inverse. When we see ROE trending above an upward-sloping ROIC curve, we definitely take notice.  Oh, and by the way, the Michael Kors agreement -- which accounts for 22% of FOSL sales -- was renegotiated until 2024.


Retail Callouts (11/12): FOSL, KORS, WMT, DKS, AMZN, EBAY - 11 12 chart4


Retail Callouts (11/12): FOSL, KORS, WMT, DKS, AMZN, EBAY - 11 12 chart5


AMZN, EBAY - Sequential slowing for both AMZN and EBAY in ChannelAdvisor Comp Sales

Takeaway: The noticeable spread between the two companies in 2014 held in October.  Sales growth slowed for both companies slowed on a 1 and 2 year trend.  Ebay's +4.4% is the worst month since early 2011.


Retail Callouts (11/12): FOSL, KORS, WMT, DKS, AMZN, EBAY - 11 12 chart1


AMZN, EBAY, DKS - Golf Comps

Takeaway: Amazon golf comps put up yet another strong month.  The delta between  Amazon and eBay can partially be explained by the fact that eBay implemented a defect rate as part of its seller profile earlier this year, thus pressuring used product sellers to be more selective in their inventory.  At the same time Amazon has added features to expand the used category.  Either way, strong sales in this channel -- which is the bottom of the food chain for golf sales -- does not bode well for the category in general. The malaise that became apparent earlier this year (plaguing DKS and others) is still alive and well. 

 Retail Callouts (11/12): FOSL, KORS, WMT, DKS, AMZN, EBAY - 11 12 chart3



WMT - Walmart Memo Orders Stores to Improve Grocery Performance



Takeaway: The writer here clearly had an agenda from the start. Taking a confidential memo about the need for improvement in the grocery department and dovetailing that with a singular store visit is just flat out irresponsible. For starters, these types of memos get circulated all the time. We're sure if you found a disgruntled Whole Foods employee you could get your hands on something similar. Asking your employees to execute on the 'Would I Buy It?' grocery test isn't egregious. The troubling thing for WMT is the overall discontent from its employee - that's nothing new, we know that, but to have store managers tactically leak information to the press is never a good recipe.  This is an employee-relations problem, not a grocery problem.





WMT - Wal-Mart Stretches Black Friday Deals to Reach Shoppers



  • "The 'New Black Friday' will include five days of sales on Walmart.com and in stores, starting at 12:01 a.m. online on Thanksgiving and running through Cyber Monday, the Bentonville, Arkansas-based company said in a statement today."


JWN - Nordstrom Rolling Out Shoes of Prey In-Store Shops



  • "Nordstrom is rolling out in-store shops for Shoes of Prey, an Australia-based online firm that enables women to design their own shoes."


Cambodia to Increase Minimum Wage



  • "The minimum wage in Cambodia’s garment sector will be raised to $128 beginning in 2015, a 28 percent increase over the current $100 monthly wage."


REI names its first-ever chief creative officer



  • "Outdoor outfitter REI has added a chief creative officer slot, and hired Ben Steele to fill the position, effective Jan. 1. Steele most recently served as executive creative director at global brand firm Hornall Anderson in Seattle."


BBY - Best Buy to open 5 p.m. on Thanksgiving, one hour earlier than last year



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Keith's Macro Notebook 11/12: Sentiment | Europe | UST 10YR

Sentiment, Europe and UST 10YR (UPDATED)

Client Talking Points


What isn’t bearish is how people were positioned at the SEP $SPX highs and this morning’s – II Bull Bear Spread (bulls minus bears) is +99% to the bullish side since OCT 13th (14.8% Bears tracking all-time lows).


Saw a lot of “charts” in which people were claiming Europe was “breaking out yesterday” – in other news this morning, Italy leads losers -1.6% - MIB Index, the DAX -0.9%, and Eurostoxx50 -0.9% all confirming bearish TREND @Hedgeye).


UST 10YR Yield is down 3 bps this morning (after falling last week on a bad jobs report) to 2.33%, continues to crash (-23% year-to-date) vs. misplaced U.S. growth expectations of +3-4%; we still see sub 2% for the year when it’s all said and done (Q4 slowing).

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). U.S. real GDP growth is unlikely to come in anywhere in the area code of consensus projections of 3-plus percent. And it is becoming clear to us that market participants are interpreting the Fed’s dovish shift as signaling cause for concern with respect to the growth outlook. We remain on other side of Consensus Macro positions (bearish on Oil, bullish on Treasuries, bearish on SPX) and still have high conviction in our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.


We continue to think long-term interest rates are headed in the direction of both reported growth and growth expectations – i.e. lower. In light of that, we encourage you to remain long of the long bond. The performance divergence between Treasuries, stocks and commodities should continue to widen over the next two to three months. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove. We certainly hope you had the Long Bond (TLT) on versus the Russell 2000 (short side) as the performance divergence in being long #GrowthSlowing hit its widest for 2014 YTD (ex-reinvesting interest).


The U.S. is in Quad #4 on our GIP (Growth/Inflation/Policy) model, which suggests that both economic growth and reported inflation are slowing domestically. As far as the eye can see in a falling interest rate environment, we think you should increase your exposure to slow-growth, yield-chasing trade and remain long of defensive assets like long-term treasuries and Consumer Staples (XLP) – which work decidedly better than Utilities in Quad #4. Consumer Staples is as good as any place to hide as the world clamors for low-beta-big-cap-liquidity.

Three for the Road


BoE growth outlook cut:  2015 GDP at 2.9% vs 3.1% in August and 2016 GDP at 2.6% vs 2.8%. Inflation outlook also revised down #EuropeSlowing



Either write things worth reading or do things worth writing.

-Ben Franklin


Wal-Mart isn’t concerned about slowing growth in China; the Company is sticking by a plan to have around 480 Wal-Mart stores in China by the end of 2016.

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