KEY POINTS
- OUT OF HARD CATALYSTS: Mgmt reset the bar on revenue growth expectations by guiding 1Q16 revenue growth 13 percentage-points below consensus. We estimate that guidance calls for a deceleration in Ad revenue growth in excess of 11 percentage points depending on the rate of sequential growth assumed for its Data Licensing segment, which hasn't declined q/q since 3Q13. We suspect mgmt bought itself enough breathing room on what appears to be a particularly light guide, but TWTR's push into Auto-play ads remains a wild card given the trade-off between engagements and CPE. Further, if Auto-play winds up siphoning off engagements from its legacy CPC ad products (i.e. ad fatigue), then that breathing room could evaporate quickly. It's a murky picture that we would rather just avoid, and given bombed out sentiment, we would rather just watch from the sidelines for now.
- BUT NOT OUT OF THE WOODS: Remember TWTR needs to beat on both monetization and user growth expectations to appease the street. Those two factors have historically worked against each other with the common denominator being ad load (see 3rd note below). It's also worth noting that TWTR's push into auto-play could exacerbate this dynamic since TWTR needs a disproportionately higher level auto-play ad load to drive revenue growth given the CPE discount. But more importantly, user growth will be much tougher to achieve since we estimate that TWTR has churned through nearly 40% of its US user base (2nd note below). That is shifting the dynamics of its user growth from organic growth toward reengagement, which we suspect will be tougher to achieve without giving those users a clear incentive to come back. That said, we suspect it’s premature to call to try to call the bottom on TWTR; this story will be tough to turn around.
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.
Hesham Shaaban, CFA
Managing Director
@HedgeyeInternet
TWTR | Bad Guide, Better Story (4Q15)
02/11/16 08:18 AM EST
[click here]
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]