- 4Q15 = LACKLUSTER: We were expecting a decent beat on what appeared to be a sandbagged 4Q guide. However TWTR only produced inline revenue; largely due to a sharp sequential surge in Data Licensing revenue. Ad revenues missed consensus estimates, with growth decelerating to 48% y/y from 60% in 3Q15. Auto-play may also be emerging as more of headwind than tailwind since surging ad engagements are coming at the expense of a sharp deceleration in CPE, and potentially user retention since auto-play's lower CPE also means TWTR needs to introduce a disproportionately higher number of ads into the users' feed to drive a comparable level of revenue growth vs. its legacy ad products.
- BAD GUIDE, BETTER STORY: TWTR guided light for 1Q16, but it actually looks much worse if we break it down by segment. If we assume 1Q16 Data Licensing is flat q/q in 1Q16, then the 1Q guide implies ad revenue decelerating to ~37%, which is below the rate that consensus was assuming for any quarter in 2016, particularly 1Q16 (50%). However, mgmt didn’t provide annual guidance, and the sell-side didn't press them on it since mgmt improved its narrative by shifting the focus almost entirely toward prioritizing the user. We believe this would be the smarter move since its long-term prospects are currently limited given its heightened cumulative user churn (see 2nd note below for detail).
- SHORT LIKELY PLAYED OUT: We were looking at this print as somewhat of a binary event since mgmt's approach to 2016 guidance was going to determine how much longer we were going to stick with the short. However, mgmt essentially removed that catalyst. The stock is holding up after hours despite the light 1Q guide, which we suspect is partly due to mgmt’s improved narrative, but also because of bombed out sentiment, especially following LNKD's print. We’ll be monitoring where consensus 2016 estimates trend from here, but more likely that not, our short has run its course.
See notes below for supporting analysis and recent thoughts. Let us know if you have any questions, or would like to discuss in more detail.
TWTR | Thesis Refresh (2016)
01/26/16 08:11 AM EST
TWTR: The Crossroads (User Survey: n=7,500)
08/25/15 07:48 AM EDT
TWTR: What the Street is Missing
05/19/14 09:09 AM EDT