On Feb 9, after market close, short messaging service provider Twitter TWTR came up with adjusted quarterly earnings of 38 cents per share for the fourth quarter of 2020, beating the Zacks Consensus Estimate of 30 cents per share. This compares to earnings of 25 cents per share a year ago. Shares gained about 3.5% after hours.
This quarterly report represents an earnings surprise of 26.67%. A quarter ago, it was expected that Twitter would post earnings of 6 cents per share when it actually produced earnings of 19 cents, delivering a surprise of 216.67%.
Twitter, which belongs to the Zacks Internet - Software industry, posted revenues of $1.29 billion for the quarter ended December 2020, surpassing the Zacks Consensus Estimate by 8.69%. This compares to year-ago revenues of $1.01 billion. The company has topped consensus revenue estimates three times over the last four quarters.
What Lies Ahead?
Twitter expects revenues to grow faster than expenses in 2021, assuming that the pandemic threat continues to pass away and an expected “modest impact” from Apple’s upcoming privacy changes to iOS 14. The social media major expects 20% year-over-year growth in active users in 2021.
However, Monetizable Daily Active Users (MDAU) of 192 million came in short of the estimate of 193.5 million. The company expects headcount growth of more than 20% this year, with overall expenses rising more than 25%.
Time to Go for Twitter-Heavy ETFs?
Given the above mixed scenario,gutsy investors can use the recent gains in Twitter shares via the ETF route. The company’s long-term prospects look positive though slight short-term hurdles exist. If an investor finds it too risky to bet on Twitter now, the ETF route can be taken as the basket approach lowers company-specific concertation risks.
ETFs in Focus
Twitter’s results will likely have a considerable impact on Global X Social Media ETF SOCL. Twitter takes about 7% of SOCL, holding the third position. As a result, the company’s performance is crucial to the entire social media sector. The product charges 65 bps in annual fees. SOCL has company-specific concentration risk, putting more than 60% investments in its top 10 holdings. At the current level, SOCL carries a Zacks ETF Rank #3 (Hold) with a High-risk outlook.
Another ETF that will be impacted by Twitter’s earnings is MicroSectors FANG+ ETN FNGS. Twitter takes about 12.89% of the fund. The stock also has 5.24% weight in Invesco Dynamic Media ETF PBS (see all Technology ETFs here).
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