The year 2015 hasn't so far been lucky for the social networking site Twitter ( TWTR ). After reporting a weak Q1, the company again disappointed investors in Q2 on July 28, and saw a freefall in its share price. This time the company beat on the top and the bottom lines and should have ideally seen a lift in its share price. But a deceleration in monthly user growth and a slightly soft Q3 guidance prompted investors to stay away from the Twitter stock .
Q2 in Detail
The company's second-quarter 2015 loss per share (including the stock-based compensation expense) of 19 cents was ahead of the Zacks Consensus Estimate of 24 cents loss per share. Excluding the stock-based compensation expense, the company earned $0.07 earnings per share on a pro forma basis.
Revenues of $502.4 million in the quarter beat the Zacks Consensus Estimate of $487 million. Revenues were up 61% from the year-ago period. Absent the impact of negative currency translation, revenues grew 68%.
The company finished the quarter with an average 304 million monthly active users (MAU), excluding SMS Fast Followers. This indicated growth of 0.7% quarter over quarter and about 12% year over year. Investors could not accept an only 2-million user growth (on a q/q basis). Both y/y and q/q growth rates mark ' the slowest pace ' since its IPO.
The blow came in the form of guidance as well. Twitter anticipates total revenue for the third quarter between $545 million and $560 million, way below the Zacks Consensus Estimate which was pegged at $561 million prior to the release. However, for 2015, revenues are projected the range of $2.20 billion to $2.270 billion, up from the earlier guidance of $2.170 billion to $2.270 billion.
The soft MAU metric dampened investors' mood as the stock saw a landslide, plunging over 11% after hours. However, year to date, the stock is still up 1.9%. Moreover, investors should note that there were some bullish points in the Twitter earnings scorecard. For example, full-year guidance was raised, advertising revenues (ex-FX impact) saw a 71% rise, and Ad engagements jumped 53%.
So, investors can play this dip by investing in Twitter. Though the stock carries a Zacks ETF Rank #4 (Sell), it is a great growth and momentum play with Zacks Style Scores of 'A' and 'B', respectively. However, many may view this as a risky task, and can thus opt for a basket or ETF approach. Notably, the ETF route will help investors to mitigate one company's average performance with the other company's stellar results and lower company-specific concentration risks.
Twitter does not have a sizable exposure in the overall ETF world with only three ETFs - Renaissance IPO ETF ( IPO ), ARK Web x.0 ETF ( ARKW ) and PowerShares NASDAQ Internet Portfolio ( PNQI ) - having major exposure of 7.71%, 4.82% and 3.87% respectively, at present. Below, we have discussed these three funds in detail:
IPO in Focus
IPO - as the ticker suggests - targets initial public offerings in the U.S. markets for its exposure. The fund holds the newly listed companies for a maximum of two years and can add important firms in as little as five days after their debut. Since TWTR is still a new candidate in the market, it has easily found a place in IPO (read: 2 ETFs in Focus as the IPO Market Heats Up ).
Holding 54 securities in its basket, IPO has amassed an asset base of about $27.3 million. IPO charges 60 bps in fees. Twitter takes the second position in the fund. Year to date, the fund is up over 5.4%.
PNQI in Focus
This 96-holding product has about $225 million in assets. Twitter is the fund's seventh holding. Internet software and services make up about 61% of the portfolio, while Internet Retail constitutes about 34% of the fund. PNQI is up about 13.7% year to date. However, PNQI has a Zacks ETF Rank #4 (Sell) with a High risk outlook (read: Forget Semiconductor ETFs; Try Other Options in the Tech Space ).
ARKW in Focus
This actively managed fund holds about 50 stocks in its basket. Twitter takes the second position in the fund with about 4.82% exposure. The ETF has AUM of $13 million. The product charges 95 bps in annual fees. The fund is up 16.3% so far this year (read: 5 Tech ETFs to Watch Post Netflix Q2 Results ).
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