Hedge Funds were dumping Twitter in enormous quantities in the second quarter. To what should be no surprise, the stock has fallen by more than 27% from its June highs.
Shares of the social media company fell hard after reporting monthly active users fell in the second quarter. Investors took little comfort in the company beating earnings and revenue estimates, after following with disappointing third-quarter guidance.
Hedge Funds Reduce Stakes
During the second quarter hedge funds reduced their stakes in the company by more than 27%. The number of total 13F shares fell to 75 million from 103 million in the first-quarter. Only 24 funds created new positions in the stock, while 16 added to existing holdings. A total of 64 funds reduced or exited the stock during the quarter.
There were some notable hedge funds and institutions selling shares, Coatue Management, LLC, FMR, LLC (Fidelity), D.E. Shaw & Co. Inc., and Renaissance Technologies, LLC. Together the four funds sold approximately 29 million shares.
Passive Funds Buying
Most institutions were adding to shares or buying new positions in Twitter. The number of total 13F shares among institutions increased by more than 8% to 488.9 million. But, the contrast comes beneath the surface. Most of the significant buying was among institutions that use passive index funds, such as Vanguard Group Inc., State Street Corp., and Blackrock Inc. Together the three firms added a total of 36 million shares.
Analysts Slash Forecasts
Following the weak guidance, the outlook for Twitter has changed, and it seems the hedge funds were right to sell. Analysts have slashed their earnings outlook for the coming third-quarter by almost 18% to $0.14 per share. Meanwhile, revenue forecasts come down as well by almost 2% to $699.9 million.
The full-year outlook gets worse, with earnings estimates slashed by 6% to $0.70 per share. Meanwhile, revenue estimates remain unchanged at $2.91 billion. Yet, the damage goes well beyond this year, with 2019 earnings estimates falling to $0.78 from $0.84.
Making matter still worse; analysts only see the stock rising to an average price target of $34.24. Shares are currently trading at $34.15, while valued at 44 times 2019 earnings estimates. That is not cheap for a stock that is forecast to see its earnings growth rate slow to 12% next year, down from 58% this year.
It would seem in the case of active versus passive manager, this time the active funds got it right. Given the performance of the stock, the passives funds are likely now following the smart money out of the stock.