Kedrosky: Twitter is the Anti-Social Social Network

Shares of Twitter are at new lows in the after-hours session, following yet another quarter of hemorrhaging money and missing expectations. The stock is down 75% over the past two years. It’s worth noting, however, Frederick Wilson sold most of his holdings near the highs. God bless the venture capital community for thrusting this piece of offal, headlong, into our lives.

Via Briefing.com

Twitter (TWTR) will report Q4 results tonight after the close with a conference call to follow at 5pm ET. TWTR reported Q3 results at 4:10pm. Current Capital IQ consensus stands at EPS of $0.12 on Revenue of $710 mln.

Shares of TWTR have been under steady selling pressure since hitting $55 last April. The slide has led the stock to all time lows as it trades in the $14 area ahead of tonight’s report. A lack of growth in its user base has been a key in driving the stock lower. People are questioning TWTR’s viability compared to it’s primary social media peer Facebook (FB) which continues to grow at a faster rate despite a user base that is 5x the size. TWTR has also had issues with it’s top management as there were four notable departures. A concern for investors as the co is in the midst of a turnaround plan.

The combined issues have led to sentiment dropping to an all time low. Investors would like to see signs that the turnaround is starting to show some rewards despite the departures. And perhaps most importantly investors would like to see a stabilization of the user base.

Key Metrics

• Monthly Active Users- Q3 Total average MAUs were 320 mln, up 11% y/y, and compared to 316 million in the previous quarter (Current expectations are 324 mln). Excluding SMS Fast Followers, MAUs were 307 million for the third quarter, up 8% y/y, and compared to 304 million in the previous quarter. (4Q15 was 292 mln)
• Q3 Mobile MAUs represented approximately 80% of total MAUs.
• Q3 Advertising revenue totaled $513 million, an increase of 60% y/y.
• Q3 Mobile advertising revenue was 86% of total advertising revenue.
• Q3 Data licensing and other revenue totaled $56 million, an increase of 37% y/y.

Guidance

• TWTR issued downside guidance for Q4, projecting revenue in the range of $695-710 mln vs. then-$741.70 mln Capital IQ Consensus Estimate.
• Q4 Adjusted EBITDA is projected to be in the range of $155-175 mln.
• GAAP expenses are projected to include the vast majority of the $5-15 mln of total restructuring charges expected from corporate restructuring activities. These charges are projected to be $10-20 mln. The majority of corporate restructuring charges will be in Q4 (this is excluded from Q4 EBITDA guidance).
• Capital expenditures are projected to be no more than $110 million.
• TWTR is expected to guide for Q1 and FY16
  • Q1 Capital IQ consensus- EPS $0.08, Revenue $629 mln.
  • FY16 Capital IQ consensus $0.54, Revenue $3.093 bln.

Q3 Recap

TWTR reported Q3 (Sep) earnings of $0.10 per share, $0.05 better than the Capital IQ Consensus of $0.05. Revenues rose 57.6% year/year to $569 mln vs the $562.17 mln Capital IQ Consensus.

• Revenue Breakdown
  • Advertising revenue totaled $513 million, an increase of 60% y/y (Q2 +63%)
  • Mobile advertising revenue was 86% of total advertising revenue.
  • Data licensing and other revenue totaled $56 million, an increase of 37% y/y (Q2 +44% y/y)
  • U.S. revenue totaled $370 million, an increase of 54% y/y (Q2 +53% y/y)
  • International revenue totaled $199 million, an increase of 65% y/y (Q2 +78% y/y).

Executive Departures

• The four executives were Alex Roetter and Kevin Weil, who have run all of the product and engineering together the last eighteen months, according to Dorsey, Katie Stanton, who led the media team, and Skip Schipper, who was vice president of human resources

New Board Members?

• According to sources TWTR may name two new Board members with its release. One candidate getting strong scrutiny has been a top exec at a major media company, while the other is considered a powerful creative player within Hollywood.

I’m sure this stock is a buy at some point. But the company is truly doing a miserable job at monetizing an incredibly valuable platform.

Kyle Bass is betting for the world to end. But first, he wants to see everyone in China lose their money. He declares in a note out today: there is over $34.5 trillion (WTF, how is that possible?) in the Chinese banking system, much of which is wrought with utter garbage. He rambles on about the shadow banking system, much to the chagrin of the illuminati. Then he states if China were to write down 10% from that $34.5 trillion, they’d stand to endure a $3.5 trillion drawdown.

Well, no fucking kidding. If I were to jump into a lake, I’d get wet. But I don’t feel like doing that right now, Kyle Bass, for the waters are too frigid.

Should the Chinese banking system lose 10 percent of its assets because of nonperforming loans, the nation’s banks will see about $3.5 trillion in equity vanish, Bass, the founder of Dallas-based Hayman Capital Management, wrote in a letter to investors obtained by Bloomberg. The world’s second-biggest economy may end up having to print more than $10 trillion of yuan to recapitalize banks, pressuring the currency to devalue in excess of 30 percent against the dollar, according to Bass.
“What we are witnessing is the resettling of the largest macro imbalance the world has ever seen,” he wrote. “Credit in China has reached its near-term limit, and the Chinese banking system will experience a loss cycle that will have profound implications for the rest of the world.”

“The problems China faces have no precedent,” Bass wrote in the letter. “They are so large that it will take every ounce of commitment by the Chinese government to rectify the imbalances. Risk assets will not be the place to be while all of this is happening.”

“We believe the epicenter of the problem is the Chinese banking system and its coming losses,” he wrote. “Until China experiences a significant devaluation, it will not be able to cope with the build-up of credit that has helped fuel its rise, but may, in the short-term, be its undoing.”

Bass claims only $2.2 trillion of China’s $3.2 trillion in FX reserves are liquid.

Do you know what else happened in 1930? The greatest depression this country has ever seen is what happened.

The oil glut is real. As prices decline, desperate men pump more and more and more, fixing themselves into a ‘fag box‘, until bankruptcy happens. This is true for not only a number of companies, but whole nations dependent upon petro-dollars to fund their hedonistic lifestyles.

WTI is at $27.40 now, new lows.

The market was up 187 at the highs.  If you’re just tuning in now, just know that Janet Yellen was a major disappointment. She’s sticking to her guns on HIKING rates, despite the fact that world markets plunge lower on a daily basis. She dismissed the lack of inflation as ‘transitory’ and repeated her singular positive bullet point of a ‘strong labor market’ as a reason to destroy the fabric of western finance.

Clearly she has ulterior motives.

As the day progressed, the Yen soared v the dollar, indicative of Yen carry trade holders unwinding their positions.

I don’t understand why so many in the media defend the actions of Janet Yellen. She is purposely being belligerent and is making things much worse. These people who support Yellen are either short stocks or have zero irons in the fire. They’re just talking heads with asshole opinions.

TLT has moved higher all day long, ever since Yellen’s prepared remarks were released.

The Fed no longer cares about equity holders; that much is abundantly clear and was communicated very clearly during today’s testimony.

I am long SPY/TLT and will continue to add to SPY on dips, dictated by Exodus, because we’re oversold. However, longer term, the bear will prevail over this market, so stay flexible.

This Yellen testimony is so bad, it’s a victory that the market isn’t down 300. Well, technically, the day is young, so anything can happen.

Nevertheless, I like the fact that stocks aren’t down 300 after Yellen projectile vomited onto my television screen.

I added to my SPY position, hoping for a late day rally.

In the event stocks do go down 300, my TLT should offset some of the SPY losses. And, I still have 25% in cash.

I will get some video up for you later. I’m on the road now, blogging from my iPad.

I am watching this testimony and simply dumbfounded by Yellen’s responses.

When asked about the global crisis and plunge in markets and what it would take for the Fed to lower rates again, Yellen was dismissive, suggesting that labor markets were strong and how she did not foresee the need to lower rates again, when in fact she wants to ‘normalize’ them.

My favorite part of this drek is her repetitive use of the word ‘transitory’, when describing the lack of inflation in the economy. In other words, the rout in commodities is temporary. She sees them down 70% and dismisses it as something of a short term thing.

Someone tell the boys up in the Bakken that their pink slips are transitory.

Stocks are fading; bonds are rallying.

Board the ark.

This woman is all wrong. If you heard her testimony, you know she’s delusional. She’s still talking rate hikes. I know the market thinks she’s fucking around, but she’s not.

She is dead serious when she says that the Fed has to raise rates now in order to avoid RAPID FIRE rate increases to fend off outrageous inflation caused by runaway economic growth. She even said the drop in crude might give the economy an unexpected jolt. No mention, however, of how many oil and gas jobs will be lost in the process and how all of that oil debt will get hashed out.

I am going to repeat one important part again. I just have to.

She believes raising rates now will help contain the economy from some amazing growth that apparently is right around the bend.

Will someone please explain this to me? I can’t analyze this anymore. My head is going to explode.

When asked why she’s paying banks 50bps for keeping reserves at the Fed, she said the Fed was using those funds to buy treasuries and MBS and have profited nicely on them. She furthered, the gains had last year in the Fed’s giant $4 trillion portfolio permitted them to kick back $100 billion in profits to the government, to be spent wildly on asinine projects.

There you have it. Get it?

$600 billion has been transferred back to the treasury since 2008.

Watch out for a possibly downside reversal.

God I hate that acronym.

At any rate, the Facebook, Amazon, Netflix and Google oligarchy ruled the roost in 2015. During 2016, they’ve been decapitated, down more than 17%, collectively, since 1/1.

Here are the returns.

FB: -4.8%
AMZN: -28%
NFLX: -25%
GOOGL: -9.8%

For the day, all of the FANG members are rallying.

According to the stock market manual that I received upon passing my series 7 exam many years ago, markets should rally today. About an hour ago, all of the elements were present for a rally. Oil was higher. Gold was lower. The number one worry of the market, DB, was up 13%. And, treasuries were lower and equity futures were sharply higher.

Let’s review how things look now.

Oil is down 1.5%

Gold is down 0.6%

DB is up 5.3%

TLT is up 0.22%

And the NASDAQ is higher by 50.

Let’s be clear: the market wants to rally. We need to see the animal spirits displayed on Wall. But things have moderated a bit. Should the market fear Yellen’s comments, due to begin at 10am, this rally might unravel and losses will be abundant.

I am leaning towards bullish. I am 33% allocated in SPY, 25% TLT, the rest cash. I have a mandate to purchase more SPY today, but will wait until after Yellen’s comments to do so.

By the way, if you haven’t see the ads festooned all over the site, we are doing free trials for Exodus this week. Join us.

Crude was almost $29, before Yellen’s prepared remarks were released, indicating the Fed chief is probably more interested in the menu items at her local deli than the capital markets.

Futures have been cut in half. Treasuries are firming and oil is collapsing to the low $27s.

Don’t worry, however, the drop in crude is ‘transitory’, as Janet likes to say.