Traders on Wall Street don’t think the Twitter earnings leak is that big of a deal. If anything, it’s bad for Twitter, but great for them.
“The leak is just sloppy which is emblematic of how the company [Twitter] has been run since IPO,” said Dan Nathan, a veteran trader and editor of equity trading site RiskReversal.
On Tuesday, at approximately 3:07 pm ET, a little-known financial-data platform firm called Selerity found and published Twitter’s disappointing first-quarter results.
Twitter wasn’t supposed to report its first-quarter numbers until after 4 pm.
Earnings announcements typically come out before the opening bell or after the closing bell. Trading occurs during those periods, but the volume is low. The idea is that you have time to digest what’s in the earnings documents.
Twitter’s leaked numbers were terrible, and the stock tanked. Moreover, the irony of the fact that Twitter’s numbers leaked on Twitter did not escape traders.
Across Wall Street, traders wryly commented that Twitter would likely learn its lesson from this:
- “Haha, it’s a mistake they will make once and never again,” one trader said. “They post the report but think if they don’t have a link to it on the website, no one can see it.”
- It’s well-known on the Street that firms can build the technology to scrape websites looking for changes to webpages. As one trader put it, “If it’s posted, someone will find it.”
- “Anytime a company’s EPS leaks it’s an embarrassment,” an options trader said. “When that company purports to be at the bleeding edge of tech, it’s horrible. They aren’t the only tech company to experience same, but the confluence of a miss on revenue & lowered guidance really hit TWTR where it hurts. If BWLD [Buffalo Wild Wings] wasn’t already a “fried chicken” I’d use that phrase.”
- The options trader speculated that a lot of money was made on the leak trading options yesterday. “TWTR peaked at $US52.43 yesterday and hit $US39.21 low after that trading halt. That’s over 25% drop in total, not the 18% from halt to close. There’s blood in the streets on this one and by my estimates the money made from those that sold calls and bought puts in response to the leak made roughly $US80M. Breakdown was $US50M from put purchases and $US30M from call sales. Thus the money made in options in reaction to the leak was four times the $US20M revenue miss (rev $US536M vs estimate of $US556M).”
They also thought that the confusion surrounding the announcement shocked some complacency out of the market:
- “On average stock has moved 16% day after earnings prior to yesterday. Options market oddly only priced an 11% one day move. Investors were complacent,” said Dan Nathan. “The nature of the leak worked against the complacency. But ultimately the stock would have been down 15-20% on those results. It may not be done on downside either. I am long. Bought on close. Earlier in day replaced my long stock with calls to define my risk into the print.
- “I don’t care much about the leak and who should get executed. Bottom line, this is not a cool stock. It is trading at the exact same price that it closed at on its first day of trading in November 2013,” said Michael Batnick, Director of Research, Ritholtz Wealth Management. Traders have no reason to own this stock; investors have better places to put their money. Revenue guidance looks really light, MAUs are decelerating, net earnings are widening, etc.
Then again, some just didn’t care at all.
- “I guess I don’t think it’s particularly important. The news would have come out anyway and the reaction would have been the same,” said Josh Brown, CEO of Ritholtz Wealth Management.
Selerity, which was founded in 2008 and automated technology to scour the web for important market events, didn’t break any rules.
Twitter executives blamed Nasdaq, which hosts the tech company’s investor relations page, for the early release. Basically, someone made a human error.
These errors have happened before for some of the biggest companies.
In the last five years, there have been multiple instances where a company’s financial results have been discovered early. It’s happened with Google, Intel, Juniper, Buffalo Wild Wings, Transocean, Disney, NetApp, Applied Materials, to name a few. Bloomberg News is probably the most famous for finding early releases.
It probably will never happen again with Twitter.