Twitter convertible notes contract; Snap notes expand; China-based convertibles tank

By Abigail W. Adams

Portland, Me., July 23 – The convertibles secondary space closed out a volatile week quietly with trading volume light.

There was $70 million on the tape about one hour into Friday’s session and $300 million on the tape about one hour before the market close, sources said.

While volume was light, there were some large movements in the space as the equity of some convertible issuers skyrocketed while others got pummeled.

Twitter Inc.’s and Snap Inc.’s convertible notes were in focus following the social media company’s earnings reports.

Twitter’s convertible notes were unchanged to contracted on a dollar-neutral basis as stock rose following its earnings beat.

However, Snap’s 0% convertible notes due 2027 skyrocketed on an outright basis and expanded dollar-neutral as stock jumped more than 20% following its blowout quarter.

While social media companies were lifted on Friday, China-based companies tanked on Beijing’s latest crackdown on the private sector.

21Vianet Group Inc.’s 0% convertible notes due 2026 and Pinduoduo Inc.’s 0% convertible notes due 2025 were among the convertible notes from China-based companies that plummeted during Friday’s session.

“It’s a bloodbath,” a source said.

Social media eyed

Twitter’s and Snap’s convertible notes were in focus on Friday after the social media companies reported second-quarter earnings.

Twitter’s soon-to-mature 1% convertible notes due Sept. 15, 2021 were the most active of the tranches.

The notes were changing hands at 100.5 versus a stock price of $70.44 early in the session.

They were trading just shy of 101 heading into the close.

Twitter’s 0% convertible notes due 2026 gained about 2 points outright to trade up to 97.25 by the market close.

The social media company’s 0.25% convertible notes due 2024 gained about 4 points outright.

They were changing hands at 142 in the late afternoon.

While the notes were up on an outright basis, they were unchanged to contracted dollar-neutral, a source said.

Twitter’s stock traded to a high of $73.34 and a low of $69.88 before closing the day at $71.69, an increase of 3.18%.

Snap’s 0% convertible notes due 2027 skyrocketed on an outright basis and made large gains dollar-neutral.

The 0% notes were up more than 12 points outright with stock surging more than 20%.

The notes were changing hands at 116.125 versus a stock price of $77.27 early in the session.

They rose to 117 by the session’s end.

The 0% notes expanded upwards of 1.5 points dollar-neutral.

Snap’s stock traded to a low of $74 and a high of $79.18 before closing the day at $77.97, an increase of 23.76%.

While Snap’s stock and convertible notes outperformed Twitter’s, both social media companies beat expectations on the top and bottom lines, reported a surge in user growth, and gave upbeat guidance, laying to rest fears that social media companies would lag as life normalized post-Covid.

Twitter reported earnings per share of 20 cents versus analyst expectations for earnings of 7 cents. Revenue was $1.19 billion versus analyst expectations for revenue of $1.06 billion.

However, daily active users of 206 million were in line with expectations.

Snap once again trounced analyst expectations with its earnings.

The social media and camera company reported earnings per share of 10 cents versus analyst expectations for a loss of 1 cent.

Revenue was $982.1 million versus analyst expectations for revenue of $846.9 million.

The company reported daily active users of 293 million versus analyst expectations for 290.7 million.

‘Bloodbath’

While Twitter’s and Snap’s earnings lifted the equity of its sector peers and helped contribute to the outperformance of the Nasdaq Composite on Friday, China-based companies tanked on the latest crackdown from Beijing.

The equity of several China-based companies were down double digits on Friday.

“It’s a bloodbath for anything with an Asian bent,” a source said.

21Vianet’s 0% convertible notes due 2026 tanked as its ADRs plummeted as much as 14%.

The notes traded down to 77.5 early in the session.

They contracted 4 to 5 points on the move down, a source said.

21Vianet’s ADRs traded to a high of $17.91 and a low of $14.24 before closing the day at $15.80, a decrease of 13.9%.

Pinduoduo’s 0% convertible notes due 2025 dropped 3 points to 94.625 in the late afternoon.

They also contracted on the move down.

Pinduoduo’s ADRs traded to a high of $100.58 and a low of $95.97 before closing the day at $97.31, a decrease of 7.29%.

The latest sell-off in China-based companies was triggered by Beijing’s crackdown on for-profit education companies.

China is considering asking the companies to transform into non-profits, which would bar them from IPOs or raising capital, Bloomberg reported.

Mentioned in this article:

21Vianet Group Inc. Nasdaq: VNET

Pinduoduo Inc. Nasdaq: PDD

Snap Inc. NYSE: SNAP

Twitter Inc. NYSE: TWTR

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