“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, February 05, 2018

by Ian Harvey

IMPORTANT NOTE: There is no stop-loss or pre-determined sell price recommended – this is left to the discretion of the individual trader.


Update for Option Trades - Twitter Inc. (NYSE:TWTR) – Buy 2 Puts to 1 Call.

Wednesday, February 06, 2018

Trade 1.

Doubling-Down on Twitter Inc. (NYSE:TWTR) PUTS

** OPTION TRADE: Buy the TWTR MARCH 16 2018 23.000 PUT at approximately $0.90.

Trade 2.

** OPTION TRADE: Buy the TWTR MARCH 16 2018 27.000 CALL at approximately $1.40.

As you are well aware, the market is going through some teething problems at this stage, and as we have seen from the SNAP trade – climbing well over 20%, which is definitely not what was expected, it is prudent to protect our put trade on Twitter Inc. (NYSE:TWTR)!

The stock is expected to move approximately 15% after reporting earnings – and past history has shown that the stock has averaged an 11.3% move in recent quarters.

By executing these trades it would be obvious that the return will be smaller, but on the other-hand, protection is of the up-most importance. If the move is of that percentage, then our capital should be protected.

I am still more inclined to see Twitter report poorly, but after the SNAP set-back I think caution is to be appreciated.

Summary

Buy 2 PUTS to 1 CALL


Doubling-Down on Option Trade - Cypress Semiconductor Corporation (NASDAQ:CY) Calls

Wednesday, February 07, 2018

** OPTION TRADE: Buy the CY MARCH 16 2018 17.000 CALL at approximately $0.50.

Sell price is left to your own judgment.

The market has shown its claws in the last few days, and yesterday saw some sort of recovery; but after a day of roller-coasting, which made it difficult to predict any type of outcome -- and today may be much of the same!

However, Cypress Semiconductor Corporation (NASDAQ:CY) has managed to hang-in there, and if all goes according to plan should begin to climb out of the disaster of last week and Monday.

Here are the details of the trade recommended last Wednesday, January 31, 2018……

Cypress Semiconductor Corporation (NASDAQ:CY), a manufacturer of embedded system solutions for automotive, industrial, home automation and appliances, consumer electronics and medical products, will report earnings tomorrow, Thursday February 01, 2018, after the market closes. Wall Street expects Cypress to report $0.25 per share in earnings on revenue of $593 million for the quarter, a substantial improvement over the prior-year period's earnings of $0.15 per share and revenue of $530 million. These estimates are in line with the company's fourth-quarter guidance, though it won't be surprising if Cypress beats expectations because it had already booked 90% of its fourth-quarter revenue estimate less a month into the quarter.

In fact, Cypress' USB-C revenue had more than doubled from the second to the third quarter because of the iPhone production ramp.

On average, analysts expect that Cypress Semiconductor will report full-year earnings of $0.85 per share for the current fiscal year, with EPS estimates ranging from $0.84 to $0.88. For the next year, analysts expect that the company will report earnings of $1.18 per share, with EPS estimates ranging from $1.13 to $1.25………

……….continue reading

Moving On – The Report

Cypress presented its earnings fourth-quarter 2017 report on Thursday last week with better-than-expected results after the market closed, capping a banner year on the continued outperformance of its Internet of Things (IoT) solutions; with earnings per share of 28 cents, which beat the Consensus Estimate by 3 cents and improved 86.7% from the year-ago quarter.

The company reported non-GAAP revenues of $597.5 million, which beat the Consensus Estimate of $593 million. The figure was within the guided range of $575-$610 million and improved 12.7% on a year-over-year basis.

The robust top-line growth can be primarily attributed to improvement in automotive, IoT wireless connectivity and USB-C solutions. Driven by growth of these segments, the company has been performing well for quite some time.

The company returned 34.9% in the past year, while the industry grew 38.9% over the same time frame.

Gross margin was 45.4%, increasing 240 basis points (bps) sequentially. Operating income of $120.9 million increased 53.9% sequentially.

Cypress exited the quarter with cash, cash equivalents and short-term investments of approximately $151.6 million compared with $488.0 million in the last quarter. Trade receivables were nearly $296 million, decreasing from $356.5 million in the previous quarter. Net inventory was $272.1 million, decreasing from $287.0 million in the previous quarter.

As of Dec 31, 2017, Cypress' cash flow from operations was approximately $202 million and capex was $8 million. The company also paid quarterly dividend of $38.7 million or 11 cents per share.

Management expects first-quarter 2018 revenues in the range of $565-$595 million.

Consolidated GAAP gross margin is expected to be roughly in the range of 43-44%. Pro forma gross margin is expected in the range of roughly 44.5- 45.5%.

On a GAAP basis, the bottom line is expected to be in the range of a loss of 3 cents to earnings of a penny. Pro forma earnings per share are expected in the range of 22 cents to 26 cents.

Cypress CEO Hassane El-Khoury had this to say:

“We had a record fiscal 2017 with strong business performance. The Cypress 3.0 strategy we set in 2016 of focusing on the fast-growing automotive, industrial and consumer markets, fueled by the proliferation of IoT, contributed to strong revenue growth and earnings growing more than four times revenue in 2017. We have established Cypress as an embedded solutions leader for the IoT. This success was built on the strength of our unmatched IoT connectivity solutions, along with our broad portfolio of microcontrollers and high-performance memory solutions, in our target end-markets.”

Summary

Therefore, with the market sorting itself out and getting back on-track, expect Cypress to begin to recoup losses before the expiry of this trade.


Option Trade - Twitter Inc. (NYSE:TWTR) PUTS

Tuesday, February 06, 2018

** OPTION TRADE: Buy the TWTR MARCH 16 2018 23.000 PUT at approximately $1.15.

Sell price is left to your own judgment.

Twitter Inc. (NYSE:TWTR), a global platform for public self-expression and conversation in real time, will report earnings at Thursday, February 8, 2018, before the market opens. The consensus earnings estimate is $0.14 per share on revenue of $690.26 million but the Earnings Whisper  number is $0.19 per share.

Consensus estimates are for earnings to decline year-over-year by 30.00% with revenue decreasing by 3.76%.

COO Anthony Noto, announced that he would be leaving to become CEO of embattled online lender SoFi. Noto was instrumental in the higher-level business strategy, which underwent a significant change under his watch. Given that Twitter is still in the midst of that turnaround plan, it's not a great sign that the captain is leaving.

Also, the last weekend in January was a rather eventful one for Twitter as a bombshell report from The New York Times chronicled the mass use of social media fraud on the site. The report centered on a small public relations company, Devumi, that has created more than 3.5 million fake, automated accounts (bots), selling these accounts 200 million times over to 200,000 celebrities, newsmakers, and other influencers to inflate their follower counts.

Even worse, many of those bots used stolen information from real accounts, like pictures, names, personal data, and location data, including some from minors.

The biggest risk is that this could continue to push advertisers away from Twitter to other digital outlets like Facebook and Alphabet, which are coming close to having a duopoly in the digital advertising market. The site has essentially aided and abetted click fraud, helping influencers (and itself) inflate their fees and overcharge brands for marketing.

Wedbush analyst Michael Pachter notes he may angle for “modest” upside for the fourth quarter, but he likewise predicts a “modest” revenue year-over-year dip. This quarter’s revenue’s decline is mostly a result of TellApart, which Pachter deems a headwind circling a whopping $40 million. Moreover, comps are challenging in live video considering “lapping” Thursday Night Football coupled with the U.S. presidential election- standing at an around $15 million headwind.

The fourth quarter does not look too bright in terms of user gains and cost per engagement trends, leaving Pacther with expectations for an “underwhelming” show ahead. Additionally, with the game of ‘musical chairs’ of leaders that keep setting foot out the Twitter door, Pachter asserts: “The departure of COO Anthony Noto highlights continued execution risk and a history of elevated executive turnover at the company.”

As such, in a tentative earnings preview, the analyst reiterates a Neutral rating on TWTR stock with a $17.50 price target, which implies a 30% downside from current levels.

In a nutshell, “Slow user growth, declining ad revenue, and variability around results remain limiting factors. Until Twitter accelerates user and revenue growth, we expect advertisers to remain reticent to commit ad dollars to its platform and to seek platforms with better targeting, reach, and scale,” Pachter surmises.

Influencing Factors

Twitter is primed for its tenth consecutive quarter of cost per engagement (CPE) growth fallbacks in year-over-year growth. The culprit? A “higher” video ad mix for the social media player.

Regarding less-than-impressive user growth, Twitter will yield 2.0 million in quarter-over-quarter total monthly active user (MAU) growth, with domestic gains falling flat at 69 million.

Despite continued growth in data licensing and other revenue (estimated to grow approximately 25% year-over-year), the benefit of ad seasonality, and a slew of updates to Twitter’s product and safety features, the headwinds listed above, along with continued CPE declines and underwhelming user growth, will likely constrain overall revenue growth in Q4.

Factoring in ad seasonality, expect to see the outlook from Twitter brace for a sequential decrease in revenue and EBTIDA margin for the first quarter of 2018.

Analysts and Hedge Funds Opinions

Mahaney in a research note to clients Monday reiterated an Underperform rating on TWTR, with a price target of $18, which implies a downside of 28% from current levels.

Mahaney wrote, “In December, we conducted a survey of nearly 5,000 U.S. Internet users aged 13 to seniors to gauge the pulse of Social Media (“SM”) usage, with a specific focus on Facebook, Twitter, Instagram, and Snapchat. On the whole, Twitter had some of the least positive takeaways from our survey. The platform tested as the second least popular service overall (ahead of Snapchat), particularly among younger cohorts – though we did observe an intention for this group to increase their engagement. Further, the satisfaction levels were the lowest of the Big Four platforms, and, while still positive, showed similar levels to our last two surveys 2) Traffic Trends: We saw very positive comScore traffic trends for Twitter in Q4:17. Multi-Platform Unique Visitors increased 45% Y/Y in Q4 QTD, improving materially from 3% growth in Q3 though on a 2-pt easier comp. According to comScore, due to new forms of non-user initiated activity, iPhone reporting for Twitter was inflated from April 2017 to September 2017 and in turn impacted Multi-Platform reporting.”

Also, stock analysts at Jefferies Group dropped their FY2017 earnings estimates for shares of Twitter in a research note issued on Thursday. Jefferies Group analyst B. Thill now anticipates that the social networking company will earn $0.02 per share for the year, down from their prior forecast of $0.03. Jefferies Group has a “Hold” rating and a $22.00 price target on the stock. Jefferies Group also issued estimates for Twitter’s Q4 2017 earnings at $0.05 EPS. 

Twitter has been assigned a consensus recommendation of “Hold” from the forty-three research firms that are covering the company. Twelve equities research analysts have rated the stock with a sell recommendation, twenty-one have assigned a hold recommendation, seven have given a buy recommendation and one has assigned a strong buy recommendation to the company. The average 1-year price target among brokers that have issued a report on the stock in the last year is $18.44.

Institutional investors that have recently made a change to their positions in the stock….

Strs Ohio lowered its stake in Twitter by 27.7% during the fourth quarter. The fund owned 58,725 shares of the social networking company’s stock after selling 22,477 shares during the quarter.

 Insider News……

  • Director Evan Clark Williams sold 18,347 shares of Twitter stock in a transaction that occurred on Thursday, December 27th. The stock was sold at an average price of $24.27, for a total transaction of $445,281.69.
  • Also, General Counsel Vijaya Gadde sold 135,000 shares of Twitter stock in a transaction that occurred on Friday, November 10th. The shares were sold at an average price of $19.92, for a total value of $2,689,200.00.

Summary

Twitter has a twelve month low of $14.12 and a twelve month high of $27.33. The company has a debt-to-equity ratio of 0.35, a current ratio of 10.40 and a quick ratio of 10.40. The company has a market capitalization of $18,670.00, a price-to-earnings ratio of -49.27, a PEG ratio of 11.30 and a beta of 1.14.


Option Trade - Snap Inc. (NYSE:SNAP) PUTS

Monday, February 05, 2018

** OPTION TRADE: Buy the SNAP MARCH 16 2018 13.000 PUT at approximately $0.85.

Sell price is left to your own judgment.

Snap Inc. (NYSE:SNAP) options trade was recommended on January 19, and for those members that missed that trade or were not on-board at that stage, here is a further opportunity to execute the trade.

Also, for those that have already executed the trade and wish to extend their chance of increasing profits, then this trade is applicable.

Snap, formerly Snapchat, Inc., a camera company, has continued to disappoint investors. Snap is confirmed to report earnings at tomorrow, Tuesday, February 6, 2018, after the market closes. The consensus estimate is for a loss of $0.17 per share on revenue of $251.74 million and the Earnings Whisper number is ($0.14) per share. And it is interesting to note that investor sentiment going into the company's earnings release has only 16% expecting an earnings beat.

Overall earnings estimates have been revised lower since the company's last earnings release.

Snap has been trying to combat all odds by introducing new tools and features to boost engagement and user growth. This is expected to drive growth in the soon-to-be reported quarter. However, it is anticipated that the rate of growth will decline, continuing the trend of the previous three quarters.

Influencing Factors

Snap is entirely dependent on user base growth and ad revenues, which unfortunately have been showing a decelerating trend over the last few quarters.

In late 2016, the company launched a hardware product, Spectacles, to diversify its revenue stream. However, it has not yet been able to generate significant revenues for Snap. Per USA Today, Spectacles is the biggest tech turkey of 2017 and therefore it's unlikely to contribute this quarter as well.

Snap's flagship application, Snapchat, is highly popular among teenagers, given its attractive features. In the fourth quarter, Snap announced a redesign of Snapchat by separating posts made by friends and the ones made by publishers in an attempt to make the platform more user-friendly.

However, the latest redesign of the app is a concern. CEO Evan Spiegel mentioned on the last conference call that given the uncertainty surrounding the app's adoption; it is likely that the redesign will prove to be a headwind for the business in the short run.

In November, Snap introduced advertising tools, Promoted Stories and Augmented Reality (AR) Trial, in a bid to attract more advertisers to the platform, and thereby boost its top line.

However, growing competition from Facebook FB is a major headwind for the company. To boost its top line, Facebook is trying to lure users to its platforms. Per a recent survey conducted by investment firm Cowen, 96% of the 50 U.S. ad buyers surveyed preferred Snap's arch rival Facebook Instagram Stories, a blatant copy of Snapchat's feature of the same name, for advertisements compared with just 4% who backed Snap Ads.

Given the limited reach of Snap's services, advertisers are more likely to opt for other platforms such as Alphabet, Facebook and Twitter as the total addressable market (TAM) of these companies is much larger compared to Snapchat. Therefore, they present a much larger canvas for advertisers.

One other major setback for Snap is the losses of high-level executives. Tom Conrad, who currently serves as Snap's VP of product, has announced his departure shortly. Conrad joined Snap back in March 2016, after spending a decade at Pandora, where he was the music-streaming company's chief technology officer. The executive is planning on leaving Snap in March, likely after some equity vests after two years of service.

The news comes as Snap is in the midst of trying to roll out its biggest app redesign to date , which carries substantial risk to the business. That's especially true since many parts of Snapchat outside of the core photo/video messaging feature suffer from engagement problems, including the all-important Discover section.

Just a few months ago, Snap disclosed that its engineering chief Tim Sehn was also resigning. Sehn notified the company that he was stepping down on the same day that Snap reported dismal third-quarter earnings results. Losing a product exec shortly after losing an engineering exec is a terrible combination that threatens to create even more turbulence while Snap is revamping its core product.

Snap also restructured its hardware team in September after Spectacles flopped. Business Insider reported last summer that the company also lost three other executives just five months after the IPO, including its head of human resources, vice president of security, and general counsel. Another senior HR exec bailed in November, just five months after joining the Snapchat operator, according to The Information. If anything, the pace of executive departures appears to be accelerating, which doesn't inspire a lot of investor confidence.

Analysts and Hedge Funds Opinions

GBH Insights analyst Daniel Ives weighs in on the upcoming earnings report, noting: “Next week SNAP will be reporting its 4Q results with the Street anticipating more pain could be ahead on DAU, ARPU, and underlying business trends as the company is going through a major transition on its app redesign and business overhaul.”

Also, Jefferies downgraded Snap Inc. from Buy to Hold with a price target of $15.00.

Analyst Brent Thill comments "We continue to have optimism around Snap's platform, but fundamental execution needs to be shown before we can be more positive on the name. We've also spent some time with the updated Snapchat app and see the positives, but also some negatives behind the redesign which could lead to some turbulence in usage and adoption when rolled out." 

Several other analysts have also recently commented on the company…..

  • Deutsche Bank restated a “hold” rating and set a $13.00 price target on shares of Snap in a report on Monday, January 22nd.
  • Raymond James Financial restated an “underperform” rating on shares of Snap in a report on Friday, January 12th.
  • UBS Group cut shares of Snap from a “market perform” rating to an “underperform” rating in a report on Friday, January 12th.
  • Finally, Cowen cut shares of Snap from a “market perform” rating to an “underperform” rating and decreased their price target for the stock from $12.00 to $11.00 in a report on Thursday, January 4th.

Snap has earned a consensus recommendation of “Hold” from the forty-eight analysts that are presently covering the firm. Seventeen research analysts have rated the stock with a sell rating, nineteen have issued a hold rating, eleven have assigned a buy rating and one has assigned a strong buy rating to the company. The average 12-month price objective among brokerages that have updated their coverage on the stock in the last year is $12.78.

Institutional investors that have recently made a change to their positions in the stock….

  • Snap Inc. CFO Andrew Vollero sold 22,881 shares of the business’s stock in a transaction on Tuesday, January 16th. The shares were sold at an average price of $13.52, for a total transaction of $309,351.12.
  • Also, CEO Evan Spiegel sold 1,652,966 shares of the business’s stock in a transaction that occurred on Thursday, November 9th. The shares were sold at an average price of $12.42, for a total value of $20,529,837.72. Following the completion of the transaction, the chief executive officer now owns 86,657,812 shares in the company, valued at approximately $1,076,290,025.04.
  • As well, Director Mitchell Lasky sold 25,000 shares of the company’s stock in a transaction that occurred on Tuesday, January 9th. The stock was sold at an average price of $14.11, for a total value of $352,750.00.

Summary

Snap has faced a number of challenges in its short life, but this may be the biggest. Reviews of the redesign are negative, advertisers aren't engaged in the Snapchat platform, and users seem to be fleeing for Instagram and now potentially Twitter’s video functionality.

One day's move doesn't make or break an investment thesis, but with bad news mounting, it's hard to see Snap clawing its way out of its current challenges. And the more bad news that comes out, the worse it is for the stock, but great for this options play!

Snap Inc has a 1 year low of $11.28 and a 1 year high of $29.44. The stock has a market cap of $16,510.00 and a PE ratio of -4.31.





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