Apple (NASDAQ:AAPL), Twitter (NYSE:TWTR) and Match (NASDAQ:MTCH) had three very different earnings reports Tuesday with very different reactions. While sometimes earnings can be as good or as bad as they seem, other times investors may overreact, generating a new investment opportunity.
After beating top and bottom line expectations Apple stock took off like a rocket finishing the day up 6.58%. And the company seems to be optimistic about the future ahead, especially with their launch of the iPhone SE. Although many Wall Street estimates for Apple's Q3 were consistently being depressed, setting the bar quite low, Apple nevertheless beat them. Apple's revenue only fell about 14.5% from the year prior, and earnings only dropped 23% from the year prior to $1.42. What was even better, their guidance for Q4 was above Wall Street estimates. They delivered and the market treated them well on the news.
Any Bad News?
Although revenue beat estimates, iPhone sales just met expectations while iPad and Mac sales underperformed expectations. As you can see from the chart below, iPad sales have fallen nearly every quarter YoY. From a valuation perspective, the run up in price and reduction in EPS will place their new PE at about 12, which will put them back over the consumer electronics industry average. Some may argue that Apple won't move too much higher from this valuation due to the fact that Q4 estimates are forecasted to be almost 19% lower than the year prior. However, we all know that Apple is still capable of moving up to a PE of 15-16, but with a rising forward PE it may be less likely.
Apple delivered and I personally didn't think they would. Wall Street analysts kept downgrading their revenue and earnings outlook for the quarter, but at the end of the day, they ended up setting up a pretty small hurdle for Apple to beat - and they did it. I didn't think Apple's modest earnings beat would have popped the price so much but it did. Apple still has a nice dividend kicker, which is what I believe has kept this company's price up during sales decline. One of the more appealing areas of revenue is coming from Apple's service business, which is Apple's second largest business for the second quarter in a row. Apple thinks this business could reach Fortune 100 levels and that should be very encouraging to investors.
Twitter Loses Again
Twitter posted adjusted EPS of $0.13 on revenues of $602 million compared to Wall Street estimates of $0.10 on $607 million. The numbers may not look so bad from an outsider, but Wall Street set the bar low this time. This was one of Twitter's earnings report to smash analyst expectations and uplift the spirits of their investors, and they failed. Twitter stock finished the day down 14.53%.
It wasn't the Q2 numbers that disappointed people as much as it was the Q3 sales projection which is $590-610 million, far lower than Wall Street expectations of $678 million. Wall Street is getting tired of bothering with Twitter, hence the huge selloff today. Companies are just not handing over their money to Twitter for advertising, causing this to be their slowest quarter of growth since the company's IPO.
Any Good News?
There is no sunshine on this quarter's results. Twitter is simply reiterating their biggest advertising opportunity is in video. While some investors might be optimistic on Twitter's push into live video, others are likely turned off by the unknown. A lot of pressure is going to be placed on Twitter to make something out of their deals with the NFL, Wimbledon, and DNC in way of monetization. Investors are getting antsy and it seems like all of Twitter's eggs are going into the live video basket. Twitter's stock could be on the way down to all-time lows making them a likely takeover target.
Twitter continues to spiral downwards and investors are getting put off. From a valuation standpoint, Twitter will only drop so much before someone else eats them up - and that might not be too far away from this point. If Twitter's valuation falls below a 2X price to book ratio I wouldn't be surprised to see this company become a takeover target. But for the most part, Twitter has been and still remains a roulette investment.
Match Couldn't Find Love
Match Group exceeded expectations for Q2, but that didn't stop them from dropping 5.77%. Match reported revenues of $301 million, $4 million above expectations. And EPS came in at $0.17, compared to analyst estimates of $0.16. So why no love? Well, Match brought down their EBITDA guidance for the year by about 2% to $400-415 million anticipating a lower than expected revenue outlook for Q3.
Any Good News?
There's plenty. Match had a fine quarter and continues to show they can grow and produce positive earnings. The company still believes there is plenty of growth opportunities in foreign markets. The selloff creates a better buying opportunity for interested investors. Estimates for Q3 EPS are about $0.21. Combining that with the previous three quarters would put TTM EPS at $0.80. At $15.68 per share, that would place their PE at only 19.6.
There is a good value play here. Sure, Match has a fairly low three-year growth rate at 12.7%, but their PE ratio is far lower than the internet content and information industry average of 54. I'm not confident that Match will be able to gear up and outperform the industry's growth average, however Match still remains a solid company. They have their flaws, one of which is the debt laying on their balance sheet which is cutting into their net margin. However, they are moving ahead on their topline and producing pretty good cash flow along the way.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.