Twitter (TWTR) Stock Tumbles on Earnings, Puts These ETFs in Focus - ETF News And Commentary

After delivering an impressive performance in Q2,

(

) came up with a mixed Q3 and a slightly disappointing guidance. The social networking site then saw a downward drift in its share price as it failed to live up to many investors' expectation (read:

).

The company's third-quarter 2014 GAAP loss per share (including the stock-based compensation expense) of 27 cents was in line with the Zacks Consensus Estimate. Excluding the stock-based compensation expense, the company earned $0.01 earnings per share on a pro forma basis. Revenues of $361 million in the quarter beat the Zacks Consensus Estimate of $352 million. Revenues more than doubled from the year-ago period.

The company finished the quarter with an average 284 million monthly active users, up 4.8% quarter over quarter and about 23% year over year. Advertising revenue per thousand timeline views increased 83% year over year. 

As much as 85% of Twitter's advertising dollars came from mobile advertising. Growth in international revenues remained extremely robust at about 176%. Notably, international revenues account for one-third of total revenue.

However, the outlook was unsatisfactory. Twitter anticipates its total revenue for the fourth quarter to range between $440 million and $450 million which is well below the Zacks Consensus Estimate of $469 million. Also, per

, a decline in timeline views was the real cause of investors' impatience over Twitter. Notably, the company has seen a fall in timeline views for four successive quarters.

Several analysts believe that a high level of expectation was built over Twitter following a stellar Q2 which benefitted from a one-time event, the FIFA World Cup. However, with no such big event in the third quarter, the company failed to sustain that growth momentum (read:

).

This subdued performance dampened investors' mood as the stock traded in red after market close. Following the earnings release on October 27 after the closing bell, Twitter shares plunged about 11% on about double the regular volume. Investors probably sensed this outcome as the stock traded in red in the day's key trading session too. Year to date, the stock is down 23%.

Twitter does not have sizable exposure in the overall ETF world with only two ETFs –

(

)

(

) – having major exposure of 9.19% and 5.18%, respectively, at present. Such a huge fall in one of the major components should impact the ETFs.  Below, we have discussed these two funds in detail.

IPO – as the ticker suggests – targets initial public offerings in the U.S. markets for its exposure. The fund holds the newly listed companies for a maximum of two years and can add important firms in as little as five days after their debut. Since TWTR is a new candidate in the market, it easily found a place in IPO (read:

).

Holding 75 securities in its basket, IPO has amassed an asset base of about $40 million. IPO charges 60 bps in fees. Twitter takes the second position in the fund. IPO was down 0.3% on October 27. Year to date, the fund was up just 4.2%.

SOCL focuses on companies across the globe engaged in some aspect of the social media industry. The fund tracks Solactive Social Media Index and invests $125 million of assets in 30 holdings. Twitter takes fourth position in the fund with about 5.18% exposure.

The product charges 65 bps in annual fees. SOCL has lost nearly 10% year to date and was down more than 1% on October 27. SOCL has a Zacks ETF Rank #2 (Buy) with a ‘High' risk outlook (see

).

Twitter currently has a Zacks ETF Rank #2 (Buy). The Zacks Industry Rank falls in the top 28% zone.

Investors should note that the company is investing heavily in its products and services as well as enhancing focus on the international arena. So, investors can buy Twitter shares on the recent dip.

Adding Twitter to one's portfolio might not be a good idea, but having a basket approach via SOCL and IPO might be a great idea as far as risk minimization and diversification are concerned, and especially after this sluggish earnings report.

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