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The Macro Show Replay | October 27, 2015


October 27, 2015

October 27, 2015 - Slide1



October 27, 2015 - Slide2

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October 27, 2015 - Slide11


TWTR: Thoughts into the Print (3Q15)

Takeaway: Tricky setup with a lot of moving parts. We remain short since TWTR will eventually need to rebase 2016 expectations, question is when.


  1. UPSIDE ALREADY EXPECTED? TWTR preannounced 3Q15 revenues to come in at or above the high end of guidance, so now a 4Q guidance beat may also be the expectation.  That will be a challenge since consensus is assuming no decay in y/y ad revenue growth from 3Q to 4Q, which means TWTR can't afford any slippage on either engagements or CPE (despite slowing user growth and its first positive CPE comp from 4Q14, respectively).  While acquisition revenue could help fill the void, consensus already appears to be baking that in with 4Q data licensing revenues ramping to $63M by 4Q (vs. $50M reported in 2Q).  However, TWTR could produce upside on MAUs following tepid user growth comments on its last call.  
  2. BUT TRICKY SETUP: We’re not sure what matters more on this print: the release or how the new C-suite addresses the street regarding the longer-term story.  That’s really tough to gauge since we’re not sure what Dorsey could offer to breathe life back into this story; but he may not need much on muted sentiment.  But we also suspect that Dorsey knows that 2016 expectations need to be rebased, and doubt he is willing to risk another blow up similar to the 1Q15 release.  That said, we suspect the new c-suite may try to manage expectations before it releases 2016 guidance on the next print (also less incentive to guide high for 4Q15).
  3. WHAT WE’RE KEYING IN ON: Ad engagements and CPE; the wider the divergence between the two, the more TWTR is increasing ad load.  We suspect TWTR's surging ad load is what is causing its softening user growth metrics, and mgmt's ongoing attempts to appease street revenue expectations has led to a heighted level of cumulativer churn that will ultimately cap its long term upside (see 1st note below).  Put another way, TWTR has been chasing short-term upside at the expense of long-term damage to its model; we're ultimately trying to figure out whether that may change under the new regime.  


TWTR: Thoughts into the Print (3Q15) - TWTR   Ad MAU vs. CPE 3Q15

TWTR: Thoughts into the Print (3Q15) - TWTR   4Q15 Ad Rev Scen

TWTR: Thoughts into the Print (3Q15) - TWTR   FC Ad Rev 2Q15


See notes below for supporting analysis on TWTR's user retention issues and monetization strategy.  Let us know if you have any questions, or would like to discuss further.  



Hesham Shaaban, CFA




TWTR: The Crossroads  (User Survey: n=7,500)
08/25/15 07:48 AM EDT
[click here


TWTR: What the Street is Missing
05/19/14 09:09 AM EDT
[click here]

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Cartoon of the Day: Ackman's Valeant Effort

Cartoon of the Day: Ackman's Valeant Effort - Ackman cartoon 10.26.2015


Earlier this spring, controversial hedge fund manager Bill Ackman called Valeant Pharmaceuticals (VRX) “a very early-stage Berkshire [Hathaway].” Hmm. Fast forward to last week when an investment research firm compared the drugmaker to Enron. Shares have plunged 35% since and are down 57% from its August high. Last check, Ackman's Pershing Square Capital owns a 5.7% stake in VRX, constituting a whopping 19% of Pershing Square’s portfolio.




Our Healthcare analysts got the call right. On July 22, 2014, analyst Tom Tobin issued our Valeant Black Book laying out the short case and calling out what we considered to be an unsustainable business model.


CLICK HERE to access Tobin's prescient institutional research report on Valeant. If you’d like to learn more about our institutional research offerings please ping sales@hedgeye.com.


call to action 

We turned positive on the lodging stocks as part of our September 22nd conference call/presentation and we remain so. Q3 earnings season probably won’t be littered with big earnings beats and raises but expectations are lower following a few pre-announcements and softer Smith Travel weekly numbers. Our focus is on where we are in the cycle – early enough for the stocks to outperform in our opinion – and the 2016 outlook. Our meeting planner survey suggests the group segment may outperform expectations and corporate negotiations could lead to a record setting 2016 rate gains in that segment.




Please see our detailed note here: http://docs.hedgeye.com/HE_Lodging_Q3_Earnings_Preview_10.26.15.pdf




Wall Street Consensus Is Still Too High on Q3 GDP

Wall Street Consensus Is Still Too High on Q3 GDP - 10 26 2015 keith twitter economists


This is an important week for market watchers. On Wednesday, we’ll get an update on the Fed's interest rate policy. If you follow us, you already know our #LowerForLonger mantra all too well. In other words, we think it's highly unlikely our central planners will raise rates any time soon.


The next day we'll get a preliminary estimate on U.S. Q3 GDP. Another related theme here at Hedgeye is #GrowthSlowing, which espouses our increasingly dour outlook for both earnings and economic growth.


No surprise. Our Q3 GDP estimate is well below consensus.


As our macro analyst Darius Dale laid out in a recent conference call with subscribers, we’re calling for between 0.1% and 1.5% year-over-year Q3 GDP growth, versus the average 2.2% expected on Wall Street. It's worth noting that the consensus estimate has come down markedly throughout the year from above 3%. (We've consistently been at the low end of the range.) See the chart below.


Wall Street Consensus Is Still Too High on Q3 GDP - 10 26 2015 GDP estimate


We’re obviously in the #SlowerForLonger camp. Our forward-looking outlook for lackluster U.S. growth hinges on an increasingly strong dollar, bearish demographic trends and deflation.


Let’s be clear. We’ve got plenty of long-short ideas on how to play the evolving macro landscape. But investors that don’t should watch out.  


Wall Street Consensus Is Still Too High on Q3 GDP - Dove cartoon 0325.2015 

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