Twitter (New York Stock Exchange: TWTR) Investors have a terrible life.
Although Twitter released its third-quarter earnings report last night that revenue exceeded market consensus ($936.2 million vs. $777.2 million) and pro forma earnings per share was $0.19, the share price of social media companies fell at 11 am Eastern Time on Friday. 19.8%. This is three times the expected $0.06.
So what’s wrong with Twitter? In a nutshell: users. Or use three words to express: user growth is weak.
According to reports, in the second quarter, with the arrival of the COVID-19 pandemic, many Americans flocked to Twitter and added 20 million new users. Wall Street Journal. Last quarter, analysts believe that the situation may ease, but still predict that Twitter will add about 10 million new users. Instead, Twitter reported that it only added 1 million new users in the third quarter, the lowest consecutive growth rate since the end of 2017.
Now, this slow user growth rate has not caused much financial loss to Twitter. The continuous increase may not be large, but Twitter’s 187 million “average profitable daily active users (mDAU)” number increased by 29% year-on-year in the third quarter. Therefore, with the increase in advertising spending and more people seeing these ads, Twitter’s revenue increased by 14% year-on-year, rather than shrinking as Wall Street predicted.
However, net profit has declined, from $0.05 a year ago to $0.04 in the third quarter of 2020.
How to do
Twitter believes that there are two major events in the fourth quarter that will affect its business: elections (Twitter is worried that the election will undermine advertising expenditures) and the holiday season (holidays may see an influx of advertising spending as producers pay for promotional activities and products) . For these reasons, Twitter has more confidence in its growth rate after the election.
However, management does not seem to have enough confidence to provide investors with hard and fast guidance for the last quarter of the year, only that expenditure will increase by 20%, including capital expenditures of $250 million. The management decided to aggravate these negative factors without naming any digital positive factors to offset them, which may be an important reason why Twitter stock performed so badly today.