TWTR: No Easy Fix

Takeaway: The problem with TWTR is the business model and expectations. Dorsey likely can't fix the former; managing the latter won't be much easier.

KEY POINTS

  1. COSTOLO STEPS DOWN: This was more a question of when, not if, although we are surprised that it happened so quickly into the year.  The street had been calling for Costello’s head on and off since its prior blow-up on the 3Q14 release.  TWTR is now conducting a search both externally and internally for its new CEO; there is no timetable set for when it will fill the role.
  2. DORSEY DOESN’T HAVE THE ANSWER: Interim CEO/co-founder Jack Dorsey suggested that there will no change in the company’s direction/strategy; likely because there is no easy fix.  The problem with TWTR is its business model and street expectations.  The Street demands perpetual upside in both revenues and MAUs, but those two factors that have historically been working against each other (see note below for more detail).  Ultimately, that is a recipe for disappointment; we doubt Dorsey can manage that dynamic any better than Costolo has.
  3. ASSESSING THE SETUP: The switch from Costolo to Dorsey has no bearing on our thesis.  However, we have been mulling the short since the 1Q15 release; largely because TWTR has rebased expectations with both the guidance cut and cautious 2Q MAU growth comments.  However, 2016 is around the corner, and the +50% advertising revenue growth that the street is expecting will be a tall order without a fundamental shift in its monetization strategy.  In short, we see one quarter of potential upside ahead of another potential blow-up 1-2 quarters later.  

 

TWTR: No Easy Fix - TWTR   2Q13 Supply Shock w detail

TWTR: No Easy Fix - TWTR   Ad vs. MAU 1Q15

TWTR: No Easy Fix - TWTR   Consensus Ad 2Q15

 

For more detail, see note below.  Let us know if you have any questions or would like to discuss.

 

TWTR: Rock and a Hard Place (1Q15)

04/29/15 08:15 AM EDT

[click here]

 

 

Hesham Shaaban, CFA

@HedgeyeInternet 


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

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