- Israel Mulling Legal Action Against TWTR: The issue relates to TWTR failing to remove content advocating for violence against the country. There's no telling the probability and/or severity of any such action. Bloomberg notes that the emailed statement suggested that TWTR had removed most of these posts, so this could just be a shot a across to bow to hasten the pace. However, that doesn't mean TWTR won't see comparable headline risk in the coming days, similar to what FB has experienced in the last 48 hours, which is likely exacerbating the sell-off in TWTR today. Regardless, we doubt the increased headline risk pervading the space right now will have a material impact on TWTR's near-term fundamental prospects; longer-term industry regulatory risk is a different question.
- Long Thesis Refresh: We added TWTR long late December after being short/bearish on the name dating back to the IPO. We view the series of events that ultimately led it to restructure was the result of self-inflicted wounds on the part of an unsustainable monetization strategy (i.e. excessive ad load). We believe mgmt's pivot to de-emphasizing legacy CPC ads in favor of Autoplay video ads is a more sustainable long-term growth strategy. Further, we don’t think it will take much to return to double-digit if not +20% ad revenue growth during 2018, possibly as soon as 1H18, as the Olympics, World Cup, and mid-term elections are all incremental positive catalysts for ad spend. We saw early validation of our thesis on the last print with TWTR returning to ad revenue growth in its core O&O segment. Further, we believe it did so on declining ad load, which was previously its sole growth driver, but also its Achilles heal. For more detail on our Long thesis, please see our deck & replay below.
TWTR DECK & REPLAY - CLICK HERE
Let us know if you have any questions or would like to discuss in more detail.
