Twitter Inc (NYSE:TWTR) and Fitbit Inc (NYSE:FIT) are in the spotlight today as both companies’ shares have moved significantly with Twitter being punished for mixed reactions to its second quarter performance and Fitbit being rewarded as it is predicted to beat Wall Street expectations when it reports earnings after markets close on Wednesday.
Twitter Inc (NYSE:TWTR)’s stock lost 6.77% of their value at one point today after Jack Dorsey, Twitter’s co-founder and now interim CEO after former chief executive Dick Costolo stepped down on July 1, decided to comment on the firm’s fiascos despite its better-than-expected results for the second quarter. The company posted revenue of $502.4 million, up 61% year-over-year, handily beating expectations of $481.3 million. The company’s loss also went down to $136.7 million, or $0.21 per share, from $144.6 million, or $0.24 per share a year ago. Twitter also revealed that monthly average users grew only by 2 million in the second quarter, the slowest growth since the firm went public in 2013. Dorsey said in the conference call that this is “unacceptable and we’re not happy about it”. He also said that product announcements have “not yet had meaningful impact on growing our audience” and that Twitter has not “done a great job at aligning the entire company” to its strategy.
Meanwhile, Fitbit Inc (NYSE:FIT) has gained as much as 7.12% today amid RBC Capital Markets predicting that the firm will beat the Street’s estimates for the second quarter in its report on Wednesday afternoon. According to analyst Mark Sue, they expect Fitbit to report EPS of $0.17 on revenues of $325 million, significantly above the consensus EPS of $0.09 and revenues of $319 million. Sue also estimates fitness tracker sales for the second quarter and full year to be 3.7 million units and 16 million units, respectively. RBC’s 2017 EPS estimate of $1.20 “may have further room for upside,” Sue said.
The negative reaction of the market to Twitter Inc (NYSE:TWTR) is at odds with how the world’s foremost money managers are treating the stock. At the end of the first quarter, a total of 64 of the hedge funds tracked by Insider Monkey held long positions in this stock, up by 22 from the fourth quarter. Moreover, the value of investments that hedge funds we track held in Twitter increased 72.87% quarter-over-quarter to $1.75 billion by March 31. Although this is partly explained by an almost 40% rise in the stock price from January 2 to March 31, it still points to hedge funds betting on the stock.
Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research, we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand, the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith in large-cap stocks. In forward tests since August 2012, these top small-cap stocks beat the market by an impressive 66.5 percentage points, returning 123.1% (read the details here). Hence, a retail investor needs to isolate himself from the herd and take advantage of the best growth opportunities in the market by concentrating on small-cap stocks.
Another area Insider Monkey follows is insider trades. These transactions can tell people whether certain key insiders of companies are betting on their stocks. For Twitter Inc (NYSE:TWTR), Chief Financial Officer Anthony Noto acquired a total of 12,700 in nine transactions in May. The most recent share sale by an insider was by Senior Vice President of Product Kevin Weil, who sold 31,223 shares in 5 transactions in July. Keeping these in mind, we’re going to take a peek at the latest hedge fund activity surrounding Twitter Inc.
Hedge fund activity in Twitter Inc (NYSE:TWTR)
According to Insider Monkey database, John Thaler‘s JAT Capital Management held the biggest position in Twitter Inc (NYSE:TWTR), which contained 7.26 million shares worth close to $363.7 million, accounting for 9.8% of its total 13F portfolio. JAT Capital Management is followed by OZ Management, led by Daniel S. Och, which held a $225.5 million position with 4.5 million shares. Other peers that are bullish encompass Daniel Benton’s Andor Capital Management, Jim Simons‘ Renaissance Technologies and David E. Shaw’s D.E. Shaw & Co., L.P..
As industry-wide interest jumped, key money managers were leading the bulls’ herd. It should be pointed out that OZ Management established its stake in Twitter Inc (NYSE:TWTR) just in the first quarter. Another previously-mentioned investor, Renaissance Technologies, also bought 2.62 million shares during the same quarter. The following funds were also among the new Twitter investors: Peter Muller’s PDT Partners, Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital, and Nick Niell’s Arrowgrass Capital Partners.
Because hedge funds love Twitter Inc (NYSE:TWTR), Insider Monkey also recommends buying the stock.