Twitter stock price plunges 21 percent after Q3 2019 earnings

Elon Musk reaches settlement with SEC regarding Twitter

On Thursday, social media firm Twitter posted much lower earnings than expected for the third quarter. Market analysts projected that the company would earn $874 million in revenue in Q3 2019. In reality, the platform only grossed $824 million in the period ending September 30. As a result, the corporation’s stock price fell by a staggering 20.8 percent.

Consequently, the company lost $6 billion of its valuation in one day.

Twitter’s Very Bad Quarter

Admittedly, Twitter did prepare investors for poor returns in the third quarter. The social media company previously stated that its revenues would take a hit in Q3 due to adjustments to its advertising program. Moreover, the organization claims that technical problems impaired its ability to place targeted ads and share intelligence with its business partners.

Manage your supply chain from home with Sourcengine

The corporation explained that it shut down a key data gathering algorithm because its user opt-out feature malfunctioned. Moreover, the firm had to deactivate its data-sharing functions intermittently because they improperly sent marketers reports on users who declined to have their personal information distributed.

Twitter recorded earning $37 million in net income in the third quarter, a year-on-year decline of 65 percent. The firm also fell far short of analyst expectations, which predicted that the company’s Q3 net income would be $161.5 million.

Twitter’s profitability also suffered because the company saw its operating expenses rise by 17 percent year-on-year. In the third quarter, the firm’s operating expenses totaled $780 million. The corporation attributed this increase to a ramp-up in recruitment as well as research and development.

The social media service’s earnings report was not entirely negative, however. It earned $702 million in ad revenue—an eight percent increase from Q3 2018. Also, Twitter beat analyst expectations on one critical metric: daily active users.

Market research firm Refinitiv forecasted that the company would host an average of 141 million consumers in the third quarter. That estimate was close as 145 million people used the corporation’s platform every day in the quarter.

Notably, Twitter’s daily active user segment rose by 4.3 percent from the second quarter.

Q4 Outlook

In an investor call, Twitter CFO Ned Segal did not paint an optimistic picture regarding its Q4 earnings. The company projects that it will generate $940 million to $1.1 billion in revenue in the final three months of the year. Moreover, the firm expects a Q4 operating income of $130 million to $140 million.

Segal explained that ad revenue headwinds will negatively impact the company’s income in the fourth quarter and possibly into 2020. Notably, the executive claimed that the targeting and data-sharing problems the firm experienced intermittently in Q3 hurt its advertising rates. Specifically, he noted that because the company’s ads became less impactful, marketers paid less to use them.

Accordingly, the firm does not expect to see a recovery in ad prices in the near term. Nonetheless, Twitter’s fortunes should improve in the second half of next year. Recently, the company inked agreements with Eurosport and NBC Sports to host their video coverage of the 2020 Summer Olympics. As such, the firm should see an increase in user engagement that should also boost its monetization rates.