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TWTR | Auto-Play Action (3Q15)

Takeaway: It appears TWTR's monetization targets are still trumping its user growth priorities, which is becoming a longer-term structural issue.

KEY POINTS

  1. BAD PRINT, SMART MOVE: TWTR 3Q's results came above estimates, which was largely expected given the preannouncement.  MAU growth wound up missing expectations, with US MAU growth slowing to 5% y/y (ex FFs).  TWTR took its first step toward rebasing 2016 expectations by issuing 4Q guidance ~$40M below consensus estimates, with the midpoint of guidance assuming 47% y/y growth, which is a deceleration of 11 percentage points from 3Q15, and basically inline with what consensus is expecting for growth for all of 2016 (45%).  Naturally, we should expect 2016 estimates to come in from here; question is how much.
  2. AUTO-PLAY ACTION: TWTR’s ad engagements spiked 94% sequentially, alongside a -42% decrease in CPE; collectively a divergence that we haven’t seen since the 2Q13 Supply Shock, suggesting that TWTR may be stuffing the feed with more ad load (see chart and note below for detail).  While mgmt suggested that ad load remained flat q/q, it also stated that autoplay "uses less inventory on a monetization basis".  That basically means that auto-play has a lower engagement threshold vs. TWTR's legacy ad products (e.g. 3-second view vs. ad click).  That said, TWTR essentially swapped out its legacy ad load for more intrusive ads that are harder to avoid, which is basically the same thing as stuffing the feed.
  3. MORE OF THE SAME?  We suspect TWTR has been chasing short-term upside at the expense of long-term damage to its model in the form of cumulative US MAU churn (HRM survey = 38%), which we attribute to surging ad load.  While mgmt unapologetically guided light for 4Q, which is encouraging, it still appears that its monetization targets are trumping its user growth priorities (Point 2).  That said, if TWTR continues to chase estimates with excessive increases in ad load next year, it will come with the risk of a potential y/y decline in US MAUs.  We wouldn't be too quick to rule that out given its heightened cumulative churn and growth already slowing into the mid-single digits.

 

TWTR | Auto-Play Action (3Q15) - TWTR   Ad eng vs. Price q q 3Q15

TWTR | Auto-Play Action (3Q15) - TWTR   Ad eng mau q q

 

 

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


@HedgeyeInternet 

 

 

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]


Draghi Whacks Oil

Editor's Note: Click here to learn more about our suite of investing products and how you can subscribe.

 

Draghi Whacks Oil - 10 28 2015 oil

 

Oil was slammed by Draghi’s Devaluation, closing down another -1.8% yesterday (WTI), taking it to -5.2% in the last week alone. It's still very much in crash/deflation mode -47% year-over-year. Witness the carnage in Oil & Gas stocks (XOP) -2.9% yesterday too.

 

Draghi Whacks Oil - Oil cartoon 08.18.2015

 

Yeah, #NoWorries. Everything you had to be long for the 1st two weeks of October, like Oil & Gas stocks (XOP), U.S. Transportation (IYT), and Biotech (IBB) has gone straight down in the last 3 trading days post the Draghi Devaluation => USD Up Deflation. 

 

And with oil down, we're watching Russia take a hit too...

 

Draghi Whacks Oil - 10 28 2015 russia oil

 

 


Purchase Apps | Equivocal ... Waiting on PHS

Takeaway: Purchase Apps declined WoW, accelerated YoY and remain in-line with the 3Q and YTD averages. We're more interested in tomorrow's PHS data.

 

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

Purchase Apps | Equivocal ... Waiting on PHS - Compendium 102815

 

Today's Focus: MBA Mortgage Applications

 

The Data: Purchase Apps declined -3.1% WoW but accelerated back near the fastest pace of growth YTD at +23% YoY.

 

The Distortion: The TRID related pull-forward in demand and its subsequent reversal convoluted the first two weeks of October data (see 1st chart below).  The last two weeks of semi-clean data have averaged 194.3 – which compares to the 3Q average of 202 and the YTD average of 194.4. 

 

So the data was marginally softer sequentially, better on a year-over-year basis and largely in-line with the recent quarter and YTD trend.  Discerning a discrete inflection in trend from a single, middling print in a volatile high-frequency data set is challenging, particularly with some measure of residual distortion likely still impacting volumes.   

 

The Disagreement:  We’re more interested in tomorrow’s PHS data for September which we hope will serve as the arbiter of the underlying demand Trend/TRID implementation impact as the Purchase Application (up significantly) and New Home Sales (down significantly) data for September told antithetical demand stories. 

 

The preponderance of housing data remains strong (HPI, HMI, EHS, Purchase Apps, Interest Rates, Seasonality, Election Cycle, etc) but given the NHS decline alongside the emergent slide in consumer confidence, the recessionary data in the industrial space and twin softness in the Aug/Sept Employment reports, we’re more acutely focused on marginal shifts in the data than we have been in a while. 

 

Purchase Apps | Equivocal ... Waiting on PHS - Purchase YoY

 

Purchase Apps | Equivocal ... Waiting on PHS - Purchase YTD Monthly

 

Purchase Apps | Equivocal ... Waiting on PHS - Purchase Index   YoY Qtrly

 

Purchase Apps | Equivocal ... Waiting on PHS - Purchase 2013v14v15

 

Purchase Apps | Equivocal ... Waiting on PHS - Purchase   Refi YoY

 

Purchase Apps | Equivocal ... Waiting on PHS - Purchase LT

 

Purchase Apps | Equivocal ... Waiting on PHS - 30Y FRM

 

About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 

 

Frequency:

The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 

 

 


Early Look

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"Fed Day Live" w/Keith McCullough Today at 2:10PM ET

Investors will anxiously watch as the Fed releases its highly-anticipated policy statement today at 2:00PM ET.

 

Keith McCullough will host a LIVE + INTERACTIVE online event today at 2:10pm ET offering immediate market reaction and commentary on whatever the Fed has decided to do (or not do). He will also answer viewer questions live during the show and offer high-level insight on the market impact, catalysts and how to position your portfolio going forward.

 

CLICK HERE to watch.

"Fed Day Live" w/Keith McCullough Today at 2:10PM ET - HE fedday live email invite

 

While our team believes the Fed will be more dovish than expected, Keith will distill various scenarios and describe how to be best positioned going foward. If you'd like to ask Keith a question, simply submit it via the dialogue box below the video stream.


Topics will include:

  • Does "Slower-For-Lower" (Growth) and "Lower-For-Longer" (Rates) remain the macro call?
  • Is Deflation still a risk?
  • Where is the Dollar headed into year-end?
  • What is an appropriate gross and/or net exposure to have as we traverse the next 3-6 months?

 

 

 


The Macro Show Replay | October 28, 2015

 

 


CHART OF THE DAY: This Classic Pro-Cyclical #Bubble indicator Is Flashing Red

 

CHART OF THE DAY: This Classic Pro-Cyclical #Bubble indicator Is Flashing Red  - 10.28.15 EL chart

 

Editor's note: Below is a chart and brief excerpt from today's Early Look written by Hedgeye CEO Keith McCullough. Click here if you'd like to subscribe and get a step ahead of consensus.

 

"As you can see in today’s Chart of The Day, M&A is what we call a classic pro-cyclical #Bubble indicator (peaks at the end of an economic cycle). That makes complete sense. When top-down Global and US GDP growth slows, companies try to buy growth and/or “synergies.”


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