Internet BEST IDEAS 2H18 Update | DECK & REPLAY: CLICK HERE
TIMESTAMPS
- TWTR: 01:53–17:54
- YELP: 17:55–37:22
- BKNG: 37:24–59:56
- SPOT: 60:00–75:00
SPOT
We're just renting this one. We believe SPOT has a favorable near-term setup, but a murky longer-term picture as its main competitive advantage was granted to it by the Labels, who can't risk letting SPOT separate too far from the pack (see deck/replay for detail). Regarding the near-term setup, we believe SPOT can beat the top-line on even lower subs than it guided to, especially with waning FX pressure, which alone could also lead to mgmt raising the lower end of its 2018 revenue guidance on this print. However, we suspect reported subs could matter more on this print. A couple things to consider here. SPOT reports subs in whole numbers, so it could actually miss 2Q consensus subs of 82.3M by 800K and still report in line numbers, and for that to happen, its growth in gross adds would have to fall off a cliff (see scenario analysis below). That said, we see a 2Q beat as far more likely, which in turn should mitigate the risk of a shortfall in the 3Q sub guidance range. If we're wrong here, we'll cut bait on SPOT immediately following the print. See the deck and replay for supporting detail on our Long thesis and longer-term concerns.
TWTR
We’re expecting top-line upside given the combination of recovering fundamentals and exogenous tailwinds against mgmt’s sandbagged outlook (see deck/replay for detail). However we’re somewhat cautious on sentiment since we already got the big reveal off the 1Q print in terms of +20% ad revenue growth, and expectations appear to be chasing the chart following TWTR’s inclusion into the S&P 500. That said, TWTR needs a clean beat on both 2Q revenue and the implied 3Q guide on this print, which is what we're expecting. The two incremental concerns we have are the MAU pressure that was likely telegraphed by mgmt, and the impact of Fx on the 3Q guide considering that Int'l was the main source of TWTR's accelerating growth last quarter. On the former, we expect double-digit DAU growth to trump any weakness in MAUs. We estimate that TWTR only needs sequential DAU growth of ~1% to maintain double-digit y/y growth, and we suspect the World Cup alone should get them over the line. On Fx using the DXY as a proxy, there has been a near 10 percentage-point swing in y/y growth between 1Q levels and 3Q to-date. That combined with the run-off of the World Cup should lead to decelerating growth in its implied 3Q revenue guidance, especially against the acceleration we're expecting for 2Q. However we still expect TWTR to guide above consensus considering the aforementioned buffer in its outlook. The deceleration isn't a problem per se, but it will give some ammunition to the sell-side naysayers who are refuting (i.e. late to) the recovery story.
Let us know if you have any questions or would like to discuss in more detail.
