Today's Market: Twitter Disappoints, While Alibaba Regroups

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Includes: AMZN, BABA, FB, GOOG, GOOGL, MSFT, TWTR
by: Matthew Smith

Summary

TWTR disappointed the market with its quarterly results and revenue guidance, sending shares down over 20% since results leaked early yesterday.

With the latest results, it appears that TWTR is falling behind social media peers such as FB, GOOG, and LNKD.

BABA has announced a hiring freeze, effective immediately.

Looking around the world today we see a lot of red, and that weakness is also apparent in the US market after disappointing economic data. While first quarter economic data does tend to come in below estimates, this was seen as an important quarter to judge the turnaround taking place in the United States. US markets are lower in reaction to the poor news, and foreign markets are lower due to that news and fears that the one bright spot for the world may be experiencing too much pain from the strong US dollar. Thinking along those lines, it does seem reasonable to believe that this weakness could allow the Federal Reserve to delay raising interest rates; something that would most likely help the US economy, put pressure upon the US Dollar Index in the short term and possibly force the Bank of Japan and the European Central Bank to do more heavy lifting on their own (since an interest rate hike by the Fed will not devalue their currencies for them).

The Fed will make its rate decision today and everyone expects it to stay at 0.25%, but everyone is now wondering whether rates will rise in June, September or possibly even later in the year.

Chart of the Day:

The US 10-Year Treasury is moving through the 2.00% level strongly today ahead of the FOMC's rate decision. It is believed by many that the Fed is looking to prepare the market for future rate hikes, but the prevailing question continues to be when this hike will take place.

Source: BigCharts

We have economic news today, and it is as follows:

  • MBA Mortgage Index (7:00 a.m. EST): Est: N/A Act: -2.3%
  • GDP-Adv (8:30 a.m. EST): Est: 1.0% Act: 0.2%
  • Chain Deflator-Adv (8:30 a.m. EST): Est: 0.5% Act: -0.1%
  • Pending Home Sales (10:00 a.m. EST): Est: 1.2% Act: 1.1%
  • Crude Inventories (10:30 a.m. EST): Est: N/A Act: 1.91 M
  • FOMC Rate Decision (2:00 p.m. EST): Est: 0.25%

The Asian markets are lower today:

  • All Ordinaries - down 1.85%
  • Shanghai Composite - up 0.01%
  • Nikkei 225 - CLOSED
  • NZSE 50 - UNCH
  • Seoul Composite - down 0.23%

In Europe, markets are lower today:

  • CAC 40 - down 1.31%
  • DAX - down 1.58%
  • FTSE 100 - down 0.67%
  • OSE - down 2.17%

Twitter Disappoints

It will not be entirely evident to traders today just how bad the market reacted to Twitter's (NYSE:TWTR) quarterly results because the company's earnings leaked prior to the market's close yesterday and caused much of the negative action to take place during yesterday's trading session. So while the casual onlooker might think that Twitter is only down about 5%, the real damage is four times that amount.

So what caused the sell-off? Well, Twitter's revenue trailed not only analysts' estimates but also the guidance previously provided by Twitter itself, and revenue guidance also came in well below expectations. While it is one thing to miss analysts' expectations, it is entirely another beast to miss your own, especially by such a large margin. For the second quarter, the company now expects to see revenues come in between $470-$485 million, which is well off the $538 million that analysts were expecting.

Part of the reaction from investors has to be due to frustration with management because one can argue that Twitter has not put together a perfect quarter where everything went right. We have seen Facebook (NASDAQ:FB) and LinkedIn (LNKD) please investors but when it comes to Twitter it seems that it either disappoints on monthly average user (MAU) growth or on its ability to monetize the user base. The last two quarters are a perfect example of this, as last quarter the company disappointed with MAU growth but exceeded expectations on monetization and this quarter it disappointed on monetization but reported strong MAU growth.

There is a problem with Twitter and it comes down to focus and execution. We continue to see innovation as the company creates add-on apps which it quickly grows via its namesake app and integrating within its ecosystem, but the execution on monetizing these innovations in the marketplace is what is concerning investors. Until we see the company execute better, it is hard to see how it rivals the ad platforms of Facebook and Google (NASDAQ:GOOG) (NASDAQ:GOOGL).

Is Twitter Now A Takeover Candidate?

The best answer to this question is that a takeover is not anymore likely today than it was last week. Sure, the company's stock price has fallen significantly and that would make an acquisition cheaper for a buyer, but shareholders are going to want top dollar and with many looking at this as another short-term hiccup that the company will have to work through, one would have to believe that the ultimate takeover price has not moved significantly lower. Plus, trying to do anything hostile would be quite tough without major insiders backing an outside bid so for now we think Twitter remains an independent company.

The management team on the other hand could come under pressure, and if things do not start to improve in the next few quarters, we would not be surprised to see Dick Costolo out as CEO and a fresh face in.

Other Tech News

Some other news that we found interesting this morning; Alibaba (NYSE:BABA) has enacted a hiring freeze which is effective immediately. The company employs 30,000 and Jack Ma wants to make sure that the company is not getting too large too quickly. So while the company expects to continue to grow its business, management apparently wants to focus on being efficient and keeping costs under control. It is just speculation at this point, but it certainly seems likely that Alibaba is facing the same types of growing pains that big US internet firms have faced, including Facebook, Google and Amazon.com (NASDAQ:AMZN). We would not be surprised if this paves the way for Alibaba's next big move, whether it is new international business across the board, an acquisition or their long anticipated entry into America.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.