Twitter Inc (NYSE:TWTR) Tweets A Solid Q2, ETFs Jump

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July 30, 2014 4:11pm NASDAQ:SOCL NYSE:IPO

Twitter1Twitter Inc (NYSE:TWTR) delivered an astral performance with its third public earnings announcement, this time for Q2. Unlike its two prior earnings releases, the company saw a surge in its share price as the social networking site earned the tag

of a profit-making company (excluding the stock-based compensation expense) this season. A more-than-double gain in revenues and an optimistic outlook also played their roles in pushing the stock northward.

Q2 in Detail 

The company’s second-quarter 2014 adjusted loss per share (including the stock-based compensation expense) of 23 cents surpassed the Zacks Consensus Estimate of 28 cents of loss. Excluding the stock-based compensation expense, the company earned 2 cents earnings per share.

Revenues grew a whopping 124% year over year to $312 million breezing past the Zacks Consensus Estimate of $280 million.
Investors should note that much of Twitter’s quarterly success is credited to the FIFA World Cup. The mega event spurred users across the globe to tweet frequently. Twitter took care of many features to serve soccer fans including real-time scoring, push notifications, event and match timelines and a voting ballot.

The company finished the quarter with an average 271 million monthly users, up 6.3% quarter over quarter and about 24% year over year. Advertising revenue per thousand timeline views doubled to $1.60.  As much as 81% of Twitter’s advertising dollars came from mobile advertising. Growth in international revenues remained extremely robust at about 168%. Notably, international revenues account for one-third of total revenue.

The outlook was enthusiastic too. Twitter anticipates that its total revenue for 2014 will range between $1.31 billion and $1.33 billion (up from $1.20 to $1.25 billion). Prior to this, the company raised its full-year revenue outlook from $1.15 to $1.20 billion to $1.20 to $1.25 billion.

Market Impact

After continuous underperformances, this turnaround cheered investors as the stock traded in green after market close. Following the earnings release on July 29 after the closing bell,
Twitter shares advanced about 30% on about double the regular volume. Investors had probably sensed the beat before hand as shares rose 1.74% during the day’s key trading session.

Twitter does not have sizable exposure in the overall ETF world with only two ETFs –Renaissance IPO ETF (NYSEARCA:IPO) and Global X Social Media Index ETF (NASDAQ:SOCL) – having, , 9.4% and 3.8% exposure respectively at present. Such a huge run-up in one of the major components impacted the IPO performance in yesterday’s trading. IPO shares jumped 13.4% after hours even while the broader market was soft. SOCL too climbed 4.68% in the same trading session following Twitter’s massive gain.  Below, we have highlighted these two 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 a new candidate in the market, it easily found a place in IPO (read: After GoPro, What’s Next for IPO Market and ETFs?).

Holding 66 securities in its basket, IPO has amassed an asset base of about $26.7 million. IPO charges 60 bps in fees. Twitter takes the second position in the fund. IPO is up 2.3% in the year-to-date frame (as of July 29, 2014).

SOCL in Focus

SOCL focuses on companies across the globe engaged in some aspect of the social media industry. The fund tracks Solactive Social Media Index and invests $134.8 million of assets in 31 holdings.

Previously, Twitter had a place in the fund’s top 10 holdings. But thanks to a huge sell-off in the early part of the year, Twitter had fallen out of the fund managers’ top choices. Twitter now takes the 11th position in the fund though we expect the stock to regain its prior prestige following this season’s earnings (read: Sell-Off in Social Media Stocks Puts SOCL ETF in Trouble).

The product charges 65 bps in annual fees. SOCL has lost nearly 7.4% year to date. SOCL has a Zacks ETF Rank of 3 or ‘Hold’ rating with a ‘High’ risk outlook.

Bottom Line

It seems that the dark clouds over the social media space have started to disperse. The space has been extremely beaten down to start the year on bubbled fear. As a result, at the current level, the social media stocks look relatively fairly valued. Not only this, companies are coming up with hopeful numbers this season. Another social media giant Facebook (FB) had a robust Q2 this year inciting another round of optimism over the space.

Twitter carries a Zacks Rank #3 (Hold). Investors should note that the company is investing heavily in its product and services along with enhancing focus on the international arena. Q2 could be just the first look of Twitter’s pent-up potential. Amid such a scenario, adding

Twitter to one’s portfolio might surely be a good idea, but having a basket approach via SOCL and IPO might be a great idea as far as risk minimization and diversification are concerned.

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