2Q18 Takeaways
- Soft 3Q Guide ≈ Fx: Ad revenue growth accelerated again into 2Q18 alongside a 6 percentage-point tailwind from the World Cup, offset by a moderating FX tailwind and continuing declines in non-O&O Ad revenue. World Cup will be a relatively smaller tailwind into 3Q, while Fx may be turning from tailwind to headwind into 2H; we suspect the latter is the main reason for the soft 3Q guide. The 2Q18 guide and mgmt commentary around its expected 2018 revenue trajectory was based on Fx rates as of April 16th, and the dollar suddenly shot up immediately after. Also note that TWTR came in at the high-end of its implied 2Q revenue guide despite the sudden turn in Fx (Int'l ≈ 50% of revenue), so we suspect there is a level of built-in conservatism in its 3Q guidance.
- MAU Pressure is Just an Optical headwind: DAU growth reaccelerated in 2Q18, but MAUs declined by 1M. Mgmt suggested MAUs could decline further as TWTR continues to weed out bots/fake accounts from its platform. Note that there shouldn't be any financial implications since these accounts aren't being monetized. But in actually, this could wind up being a positive for the stock since it removes one of TWTR's performance hurdles now that MAUs declines are on the table. We've seen something comparable out of both P and TRIP this year (and even TWTR on Ad revenue last year).
- Evaluating the Position: As a reminder, we originally viewed TWTR as a 2018 long that we would possibly extend into 2019. While there was nothing in today's print that was of any particular concern, we now have to consider the comps into 2019 as the series of exogenous tailwinds that complimented our long thesis (Olympics, World Cup, Mid-Term Elections) will not repeat next year. So this is really a question of where consensus tracks after today's results, which we'll be digging into in once estimates are refreshed.
TWTR DECKS & REPLAYS
- INTERNET | BEST IDEAS MID-YEAR UPDATE | 6/28/2018 | CLICK HERE
- TWTR | BEST IDEA LONG | | 1/3/2018 | CLICK HERE
See the decks/replays above for supporting detail/analysis on our Long thesis. Let us know if you have any questions or would like to discuss further
