Takeaway: TWTR crushed the print, but we're somewhat concerned with how it got there. TWTR remains on our Long bench ahead of a tougher 2019 setup.

3Q18 TAKEAWAYS

  1. Video Losing Steam? Video remains TWTR's fastest growing ad format on a y/y basis, but the sequential decline in Ad Engagements combined with the increase in CPE (pricing) suggest that Video revenue mix declined sequentially.  We also estimate that the Video revenues may have declined q/q, but that is the output of our model, so take it for what it's worth.  Regardless, it would suggest that the advertiser demand constraints that mgmt had alluded to are starting to manifest in Video as well, suggesting that it may not be as much of a growth driver into 2019, which already has a a tougher setup to begin with (see 1st deck below for context).
  2. Ad Load on the Rise Again: Conversely, we estimate that legacy CPC (non-video) ad revenue accelerated sharply on both a y/y and q/q basis, which isn't a negative in itself, but begs the question of what's going on with ad load.  TWTR suggested that click-through-rates (CTR) increased across the majority of all ad formats, which at face value would suggest less of a reliance on ad load to drive revenue growth.  However, we estimate that Legacy ad load actually increased considerably unless CTR sequentially increased by a factor ~2x, which would defy reason.  The concern here is that we believe surging ad load is what eventually led to TWTR's restructuring (see 2nd deck below for context), so this is something to monitor moving forward.  However, this isn't the same mgmt team that was chasing consensus estimates at all costs, so we do expect TWTR to be more cautious here. 

TWTR Decks and Replays

  • INTERNET | Dodging Landmines | 10/18/2018 | CLICK HERE
  • TWTR | New Best Idea Long | 1/5/2018 | CLICK HERE


TWTR | 3Q18 Takeaways - TWTR   O O Rev growth 3Q18
TWTR | 3Q18 Takeaways - TWTR   Actual vs Guidance 3Q18
TWTR | 3Q18 Takeaways - TWTR   Ad eng vs. Price q q 3Q18
TWTR | 3Q18 Takeaways - TWTR   Ad Load 3Q18

Let us know if you have any questions or would like to discuss in more detail.
 

Hesham Shaaban, CFA
Managing Director


@HedgeyeInternet