Thaler’s Fund Substantially Reduces Stake in Twitter

JAT Capital and Twitter

In 4Q14, John Thaler’s JAT Capital reduced its stake in Twitter (TWTR) by selling 2.7 million shares. The hedge fund currently holds 7.3 million shares in Twitter, which accounted for 3.37% of the fund’s portfolio holdings.

Company profile

Twitter, through its products and services, provides a platform for users to create and share information in real time. The company generates revenues of $1.4 billion. TWTR derives close to 90% of its revenues from advertising services, and the remaining portion comes from data licensing. Three products bring in advertising revenues: Promoted Tweets, Promoted Accounts, and Promoted Trends.

Thaler’s Fund Substantially Reduces Stake in Twitter

Acquisition of ZipDial

In January 2015, TWTR announced the purchase of Indian mobile start-up ZipDial for $35 million. TWTR made this move to make itself even more accessible to people around the world. As TWTR peaks in developed markets like the US and UK, emerging markets are becoming important for the company’s active user growth.

ZipDial is a pioneering mobile marketing and analytics company targeting emerging markets. It helps marketers deliver the right messages to the right people. Established in 2010 by Valerie Wagoner, ZipDial claims to have 60 million users.

Slowed growth in user base

TWTR’s recent acquisition of ZipDial should help drive up its user base, as TWTR posted disappointing monthly active user (or MAU) growth in 4Q14. The company gained only 4 million MAUs during the last quarter, bringing the total number of users to 288 million.

In 4Q14, Twitter’s MAU growth rate slowed down considerably to a quarter-over-quarter rate of 1.4% compared to 4.8% in 3Q14 and 5.9% in 2Q14. Comparatively, although Facebook (FB) had about 1.39 billion MAUs as of 4Q14, it managed to grow its MAUs by around 3% sequentially. Yahoo (YHOO) has about 575 million MAUs, while Google (GOOGL) has a massive 1 billion MAUs on Android devices alone.

Solid fourth-quarter results

TWTR’s revenues totaled $479 million in 4Q14, comfortably beating consensus estimates of $453 million and its own guidance of $445 million. Operating profit in terms of adjusted EBITDA (or earnings before interest, tax, depreciation, and amortization) came in at $141 million, up from $45 million in 4Q13 and exceeding management’s  guidance of $100 million to $105 million.

Twitter is a component of the Vanguard Information Technology ETF (VGT), making up 0.41% of the fund. The company also accounts for 0.58% of the iShares Russell Midcap Growth ETF (IWP).

In the next part, we will discuss JAT Capital’s decreased position in Google (GOOGL).