Twitter revenue hit by weaker advertising, low demand; shares plunge
Shares of the micro-blogging platform dropped to $33 in trading before the bell.
Twitter posted more worse-than-expected third quarter revenue and profit on Thursday, which the company attributed to advertising problems including product bugs and unusually low demand over the summer, sending its shares down about 15%.
Twitter Inc. added more users in the latest quarter but said its pace of revenue growth slowed sharply because of technical bugs that hurt its advertising business.
Shares plunged roughly 20% in premarket trading Thursday as revenue and profit in the third quarter fell short of Wall Street expectations and the company’s outlook for the current quarter trailed analysts’ forecasts.
Here’s what the company reported, compared with what Wall Street analysts were expecting, according to Refinitiv consensus estimates:
Earnings per share: 17 cents, vs. 20 cents expected
Revenue: $823.7 million, vs $874.0 million expected
Monetizable daily active users: 145 million
Twitter’s revenue rose 9% from a year earlier to $824 million, missing Wall Street expectations of $874 million, based on IBES data from Refinitiv. Total advertising revenue was $702 million, an increase of 8% year-over-year.
Third-quarter net income was $37 million, or $0.05 per share. In the same period last year, the firm reported net income of $789 million, or $106 million when adjusted to exclude certain items.
Analysts had expected net income of $161.5 million.
Twitter had forecast that third quarter revenue growth would lag the first two quarters, partly due to ending some older ad formats. But it also encountered unexpected problems, such as bugs which impacted its ability to target ads and share data with ad partners, and fewer big events compared with the previous summer.
For the fourth quarter, Twitter expects total revenue to be between $940 million and $1.01 billion. Wall Street on average expects $1.06 billion.
However, the social media platform did record a rise in daily users who see ads on the site, beating analyst estimates.
Twitter has stopped disclosing its monthly active users count, instead reporting mDAU, a metric it created to measure users exposed on a daily basis to advertising through the site or Twitter applications that are able to show ads.
Twitter’s Chief Executive Officer Jack Dorsey said the growth in monetizable daily active usage (mDAU) was driven by product improvements, including making the site easier to navigate and more proactively identifying abusive content for removal.
The company’s average mDAU hit 145 million, beating analyst expectations of 141 million, according to IBES data from Refinitiv. This alternative metric was up 17% year-over-year.
In July, Twitter launched a more personalized desktop Twitter.com as part of its efforts to make the platform better for conversations. It has also experimented with the ability to follow topics, and has recently expanded testing for a feature to hide replies.
Recently, the company made 6-second video bidding available for global advertisers and it has continued to expand its live and on-demand video partnerships, including deals with NBC Olympics and Eurosport for coverage of the 2020 Tokyo Games.
Twitter and other social media platforms have also recently come under scrutiny over their ad policies.
Twitter, Facebook Inc and Alphabet Inc’s Google were this month criticized by U.S. democratic presidential candidates, including former Vice President Joe Biden, for allowing politicians to run ads containing false or misleading claims.
In August, Twitter announced it would no longer accept advertising from state-controlled news media outlets, shortly after it came under fire for showing ads from Chinese state-controlled media that criticized the Hong Kong protesters.
Twitter also faced heat over its handling of user data when it said in October that email addresses and phone numbers uploaded by users to meet its security requirements may have been ‘inadvertently’ used for advertising purposes.
Total operating expenses, including cost of revenue, rose by 17% year-over-year to $780 million, partly due to plans to hire more employees.
The company expects fourth-quarter operating income to be between $130 million and $170 million.
Twitter Stock Craters on Q3 Financial Miss, Grows Daily User Base by 6 Million
Twitter posted third-quarter 2019 results that fell below targets, blaming snafus in its advertising products for part of the sales shortfall, sending the social network company’s stock plunging 20% in pre-market trading.
Revenue totaled $824 million, up 9%, under the $874 million Wall Street analysts anticipated on average. Twitter said sales were hurt by advertising “product issues,” which the company said reduced year-over-year growth by 3 or more points, along with greater-than-expected seasonality. It reported net income of $37 million, working out to an adjusted 17 cents per share, missing analyst expectations of EPS of 20 cents.
The company did manage to net a gain of 6 million “average monetizable daily active users,” it metric for tracking Twitter users. Monetizable DAUs were 145 million in Q3, up from 139 million the prior quarter and up 17% versus the year-earlier period. Average U.S. mDAUs were 30 million, compared with 26 million in the same period of the previous year and up just 1 million from the previous quarter.
“We’re continuing to improve relevance while testing ways to make it easier for people to find what they are looking for on Twitter,” said Jack Dorsey, Twitter’s CEO, in prepared remarks. “We also continue to make progress on health, improving our ability to proactively identify and remove abusive content, with more than 50% of the tweets removed for abusive content in Q3 taken down without a bystander or first person report.”
CFO Ned Segal said in prepared remarks that “Despite its challenges, this quarter validates our strategy of investing to drive long-term growth.” He acknowledged that Twitter needs to prioritize is ad products along with its investment in the health and safety of the platform.
Twitter credited the DAU growth with ongoing product improvements. At the beginning of Q3, Twitter began rolling out design changes to web interface which are designed to more prominently feature trends, events and accounts based on a user’s existing interests, along with streamlined navigation and sign-up process.
For Q4, Twitter’s guidance topped analyst expectations. The company is guiding total revenue to be between $940 million and $1.01 billion and operating income to be between $130 million and $170 million.
According to Twitter, in providing the Q4 guidance, it factored in a “rebound in our advertising business in September” and strong bookings along with the upcoming events and product and service launches expected in Q4. It also said it expected “lingering headwinds” from the advertising-product problems that hurt its Q3 results.