What Do Twitter And Zynga Earnings Mean For Social Media ETF?

| About: Global X (SOCL)
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The Global X Social Media Index ETF (NASDAQ:SOCL) is going through a rough patch. The ongoing tech rout, mainly instigated by overvaluation concerns amid broad-based gloom and a weak guidance issued by LinkedIn Corporation (LNKD), was already there to punish the fund (read: LinkedIn Crashes: Should You Connect with Social Media ETF?).

Then, fresh woes emanated from the fourth-quarter earnings results from social networking site Twitter (NYSE:TWTR) and social game developer Zynga (NASDAQ:ZNGA) will likely compel investors to stay away from the social media ETF in the near term.

Twitter's Q4 in Detail

The company's fourth-quarter 2015 loss per share (excluding the stock-based compensation expense) of $0.07 was narrower than the Zacks Consensus Estimate of $0.13 loss per share.

Including the stock-based compensation expense, the company posted a loss of $0.13 per share on a GAAP basis. This was narrower than the year-ago loss of $0.20 per share. The company's non-GAAP earnings (excluding the stock-based compensation expense) were $0.16 per share, up 33.3% year over year.

Revenues of $710.5 million in the quarter missed the Zacks Consensus Estimate of $718 million. Revenues were up 48.3% from the year-ago period. Absent the impact of negative currency translation, revenues grew 53%.

The company finished the quarter with an average 320 million monthly active users (MAU). This indicated no change quarter over quarter and 9% year-over-year expansion. Although this is the first quarter that Twitter has seen no user growth sequentially, investors clearly could not digest the fact.

The blow came in the form of guidance as well. Twitter anticipates total revenue between $595 million and $610 million for the first quarter of 2016, way below the Zacks Consensus Estimate which was pegged at $630 million prior to the release.

Market Impact

The soft MAU metric, an earnings miss and soft revenue guidance dampened investors' mood as the stock tumbled 3% after hours. Year to date, the stock is down 35.3%. In the last one year, the stock has plunged about 70%. Twitter has a Zacks Rank #3 (Hold), which is subject to change post earnings release.

The stock is a good growth and momentum play with a Zacks Style Score of 'A', but it lacks the value quotient as indicated by the score of 'F'. There is a high chance that Twitter will decline in the coming trading sessions, especially given the ongoing correction in the online and social media space.

Zynga's Q4 in Detail

GAAP loss per share (excluding the stock-based compensation expense) of $0.02 cents was narrower than the Zacks Consensus Estimate of $0.04 cents loss per share. Including the charges, GAAP loss was $0.5 per share, same as the year-ago quarter. Zynga's revenues of $185.8 million beat the Zacks Consensus Estimate of $177 million. Zynga also failed to live up of analysts' projection as it expects first-quarter 2016 revenues in the range of $160-$175 million, below the Zacks Consensus Estimate of $177 million.

Market Impact

Zynga also saw a landslide in its shares after hours with a 10.8% plunge. Year to date, the stock is down 20.5%. Though the stock currently has a Zacks Rank #3, it looks like that the rank is due for a downgrade. The stock is a decent momentum play with a Zacks Style Score of 'A', but its value and growth scores are not optimistic.

Social Media ETF in Focus

Notably, Twitter does not have a sizable exposure in the overall ETF world, with SOCL holding just 2.7% share in it. However, the company's results are crucial to the entire social media sector. Plus, a freefall in the shares of Zynga - which accounts for about 3% of SOCL - will make matters worse. However, SOCL has strong long-term fundamentals and carries a Zacks ETF Rank #2 (Buy). So, investors having a strong gut for risks can play this dip. SOCL is down 19.3% so far this year (see all technology ETFs here).

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