Morning Commentary: Twitter tranches drop outright, contract on swap after earnings

By Rebecca Melvin

New York, Oct. 28 – Twitter Inc.’s convertibles fell on an outright basis and were down on a dollar-neutral, or hedged, basis early Tuesday after the San Francisco-based social media company posted quarterly earnings that met or beat estimates but disappointed on user growth and certain performance metrics and guidance going forward.

Following earnings, Stifel Nicolaus downgraded Twitter to sell, citing “sluggish user growth and declining engagement metrics.” Other banks also cut their ratings on the company.

Twitter’s 0.25% convertibles due 2019, or the A tranche, traded down about 5 points at 92.50, versus an underlying share price of $42.50. That was down about 0.25 point to 0.5 point on swap, a New York-based trader said.

Twitter’s 1% convertibles due 2021, or the B tranche, were seen at 92.25 versus the same stock price, and that also represented a contraction on swap of about 0.25 point to 0.5 point, the trader said.

Most recently, shares were down $5.38 or 11%, at $43.18.

“The As are outperforming the Bs on swap,” the trader said, but both were down compared to Monday’s close, he said.

Twitter reported average monthly active users of 284 million, which grew at a slower 23% pace, and timeline views per user fell 7%.

Meanwhile, the company reported a net loss for the third quarter of $175 million, or 29 cents per share. Excluding one-time items, the loss was $7 million, or a penny, which was in line with expectations.

Revenue was up at $361 million, which was better than expectations.

Looking ahead, revenue is projected to be $440 million to $450 million for the fourth quarter. Adjusted EBITDA is expected to be between $100 million and $105 million. Full-year revenue is expected to be $1,365,000,000 to $1,375,000,000, and adjusted EBITDA was projected to be in the range of $260 million to $265 million.

Twitter priced the $1.89 billion, dual-tranche convertible offering last month. It came with a 47.5% premium and was priced via joint bookrunners Morgan Stanley & Co. LLC, Goldman Sachs & Co. and J.P. Morgan Securities LLC.

© 2015 Prospect News.
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