Wednesday, April 30, 2014

TWTR, AMC, IACI: Q1 earnings results ...


Twitter (TWTR) reported Q1 numbers yesterday after the close.  It beat both on the top and bottom-line, but the MAU figures were disappointing.  In addition, although its Q2 guidance was in-line with consensus, estimates for FY '14 ended up at the high-end of TWTR's full-year guidance.  The stock is down approx. 10% today and down 49% since its all-time high of $74.73 the day after Christmas.  Currently, TWTR's $22bil market cap remains far above our $15bil valuation of the Company.  

A mere 19% and 27% MAU growth, in the US and international markets, respectively, were not very impressive.  However, for the time-being, advertisers have jumped on the mobile platform and paid higher rates, as TWTR generated $3.47 and $0.61 ad revenues per 1000 timeline views in the US and international markets.  But in time advertisers will be looking for consistent growth in audience and audience interaction with content, two important factors driving higher ROI of ads.  While we do not think that growth in TWTR MAUs has peaked, we must say that it may decelerate a bit earlier than originally expected, similar to Facebook (FB).  If that's the case, then ad price growth may also decelerate.  No matter how low TWTR's ad load is currently, lack of growth in demand will result in an unwanted and very low capacity utilization, which is not positive.   

We upped our FY '14 revenue estimate by around $30MM to $1.22bil and now expect adj. EBITDA of $186.1MM.  Again, we are valuing TWTR at approx. $15bil, which based on a 5-year DCF.  The stock is currently trading at over 110x, 102x, and 41x FY' 14, FY '15, and FY '16 EBITDA, respectively.  TWTR's revenue multiple for those same years are: 17, 15, and 12.  We continue to think the stock is overvalued.  By the way, some additional selling due to expiration of the lock-up does pose more risk for the stock.  We were a bit surprised that management tried to discount that risk on the earnings call.  


AMC Entertainment (AMC) reported mixed Q1 results yesterday as it beat on the top-line but missed on EPS.  As expected, growth in concession revenues was stronger than admission revenues, as the Company (and others in the space) continues to invest in enhancing movie goers' experience.  We note that attendance remained strong in the quarter.  We did not make any adjustments to our FY '14 estimates, nor to our $26/sh valuation of AMC, which is based on a 5-year DCF and its share of NCMI.  Based on where AMC is currently trading, our valuation represents only 17% upside.  We remain 'neutral' on the stock.  


IACI reported Q1 results this morning with in-line revenues and higher than expected EPS.  As we mentioned after Google (GOOG) reported its numbers, search & applications revenues for companies such as IACI and Blucora (BCOR) have slowed down and will slow down further.  IACI search & application revenues came in flat Y/Y.  Its Match Group revenues were up 9% Y/Y.  We hope the Company either begins to monetize Match Group's assets (such as Tinder) more quickly or acquires additional ones, which is what IACI is known for.  Media and eCommerce segment revenues were down 12% mainly due to the Company's sale of Newsweek.  We did not make any changes to our FY '14 estimates which include total revenues of $3.4bil and EBITDA of $705.5MM; although the EBITDA number may be at risk given the lower margins we saw in Q1.  We continue to value IACI at $60/sh, representing 7.5x FY '14 EBITDA.  Given that the stock is trading slightly above our valuation, we still view it as a 'neutral' stock.  We note that while the potential of Match Group's IPO and/or spin-off represents upside, it may be discounted due to the mere single-digit Y/Y top-line growth in that segment during Q1.

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