Twitter Inc. blamed a surprise decline in quarterly revenue and a net loss on Friday on its ongoing battle to close Elon Musk’s $44 billion acquisition of the company as well as a deteriorating digital advertising market.
The announcement of the results comes as Twitter is preparing for a legal showdown in a trial that will start in October after suing Musk for withdrawing his offer to buy the company. The uncertainty surrounding the deal has alarmed Twitter’s advertisers and sparked an internal ruckus. battle
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Refinitiv IBES data show that advertising revenue increased just 2% to $1.08 billion, falling short of Wall Street expectations of $1.22 billion.battle
Total revenue for the second quarter, which also includes subscription revenue, was $1.18 billion, down from $1.19 billion in the same period last year. Analysts had $1.32 billion on the table.
According to Jasmine Enberg, principal analyst at research firm Insider Intelligence, “Twitter is now in the unenviable position of persuading advertisers that its ad business is solid regardless of how its legal battle with Musk ends. And its Q2 earnings show that the platform has its work cut out for it to do.”battle
On Friday, Twitter’s stock opened unchanged at $38.90.
The battle between Musk and deal
According to Dan Ives, an analyst at Wedbush Securities, the company’s stock is reliant on the trial’s potential outcomes and its financials aren’t impressing investors.battle
Compared to a profit of $65.6 million, or 8 cents per share, a year prior, Twitter reported a net loss of $270 million, or 35 cents per share.
Expectations for a 14-cent adjusted profit were missed by its 8-cent adjusted loss.
Although it exceeded analyst expectations of 238.7 million, the measure of Twitter users who see advertisements, known as monetizable daily active users, increased by 16 percent to 237.8 million.battle
The San Francisco-based company reported that less than 5% of users during the quarter were made up of bot and spam accounts, a statistic that has been consistent since 2013.
Musk cited the percentage of bot and spam accounts as his justification for pulling out of the agreement, and he charged Twitter with hiding the actual number of such accounts using the service.
Twitter cited the “pending acquisition” by Musk as the reason it would not offer financial guidance, send a shareholder letter, or host an earnings conference call.
The business’s costs and expenses increased by 31%. During the quarter, costs associated with the Musk deal came to $33 million, while severance-related expenses came to $19 million.battle
In May, the social networking site withdrew some job offers to recent hires. Employees were previously informed by CEO Parag Agrawal that the company needed to reduce expenses.
Some advertisers have been forced to reduce their marketing budgets this year due to inflationary pressures and concerns about a recession.
The parent company of Snapchat, Snap Inc, reported weak revenue growth on Thursday and declined to provide a forecast, citing “incredibly challenging” circumstances as a result of advertisers’ reduced spending.battle
according to reports, Friday saw the unexpected release of Twitter’s quarterly revenue report, which it partially attributed to its ongoing conflict with Elon Musk.
The social media platform reported $1.18 billion in revenue for the three months ending in June, a 1% decrease from the same period last year. According to Refinitiv data, analysts had predicted that Twitter would report $1.34 billion in revenue.
Twitter’s disappointing results follow those of Snapchat parent company Snap Inc., which on Wednesday reported disappointing results and opted not to forecast, citing “incredibly challenging” market conditions due to advertisers’ reduced spending. Shares of Snap fell 39% on Friday.battle
Twitter cited “headwinds related to the macro-environment as well as uncertainty related to the pending acquisition of Twitter by an affiliate of Elon Musk” as the cause in a press release.
In a tweet on Friday, Musk made fun of Twitter’s financial results, writing, “I’m rubber, they’re glue.”
On Friday, shares of Twitter increased 0.8 percent to $39.84.
The earnings report comes as Twitter and Musk get ready for a trial that will begin in October in the Delaware Court of Chancery. Musk wants to back out of the deal because he is worried about bots on the website, but Twitter is trying to force him to follow through with his original agreement to purchase the website for $54.20 per share.
Due to Musk’s “pending acquisition,” the company announced on Friday that it would not be holding an earnings call.
According to Twitter, “the precise timing of the merger’s completion, if at all, cannot be predicted because the merger is subject to ongoing litigation, our stockholders’ adoption of the merger agreement, and the satisfaction of the remaining closing conditions.”
Although legal experts believe Twitter has a strong case against Musk, the share price of the company currently reflects Wall Street’s continued scepticism about the deal’s likelihood of success.
Musk could file an appeal even if the Delaware Court of Chancery orders him to purchase the business. Theoretically, he could still win the lawsuit against Twitter, make a pitiful $1 billion breakup payment, or negotiate a settlement.
As businesses increased their online advertising spending in anticipation of the pandemic, revenue for Twitter and its rivals, including Snap and Google parent Alphabet, increased in 2017.
But this year, brands have been forced to reevaluate their marketing budgets due to inflationary pressures and recessionary fears.
TikTok, a favourite of Generation Z, and tech giant Apple, which offers users the option to reject data tracking, are both gaining market share in the digital advertising sector at the same time.
