Twitter falls on paltry gains in new users in third quarter

Twitter reported 187 million daily users at the end of the quarter, an increase of 29% from last year, but a paltry gain over the previous period.

| Updated on: Aug 20 2022, 23:39 IST
Twitter (REUTERS)
Twitter (REUTERS)

Twitter Inc. shares tumbled 18% Friday after the company reported far fewer new users in the quarter than analysts had estimated, dashing optimism that the social network would benefit from a return of live sports and the coming U.S. election.

The company reported 187 million daily users at the end of the quarter, an increase of 29% from last year, but a paltry gain over the previous period. By comparison, Twitter added 20 million new users in the second quarter.

Advertisers, however, flocked back to the San Francisco-based company in the third quarter, driving sales well above analysts' estimates, in a sign the digital advertising business is returning following the outbreak of the global pandemic.

Twitter is one of three internet companies under intense pressure from U.S. officials over their treatment of political content. Twitter Chief Executive Officer Jack Dorsey testified alongside the heads of Facebook Inc. and Google at a Senate panel on Wednesday. In the results Thursday, the company didn't give a forecast for the holiday quarter but suggested that uncertainty around the Nov. 3 election could impact the business.

“It is hard to predict how advertiser behavior could change,” the company wrote in its shareholder letter. “In Q2, many brands slowed or paused spend in reaction to U.S. civil unrest, only to increase spend relatively quickly thereafter in an effort to catch up.”

Twitter shares fell to $43.15 at 10:03 a.m. in New York after closing at $52.43. The stock had gained 64% this year through Thursday.

There was some concern that Twitter's business would be affected by a wide-ranging ad boycott in July, when a number of high-profile brand marketers pulled spending from social media companies over frustration with their content-moderation policies.

Twitter, unlike Facebook, has long been dependent on live events and large brand advertisers but said in April it also needed to improve its direct-response ad product, which is typically more useful for e-commerce advertisers looking to drive immediate sales. At the time, Twitter executives called better execution on these kinds of ads a “top priority.”

In the shareholder letter, Twitter said a new version of these types of ads is now delayed until 2021 so the company “can integrate expected new industry-standard mobile privacy requirements.” Ned Segal, the chief financial officer, confirmed that the delay is partly due to expected updates related to Apple Inc.'s new iOS 14 software. Some changes to Apple's software will affect how online advertisers can track people around the web, but those have been postponed until early next year. Twitter is waiting to see how they are implemented, Segal said.

Twitter didn't issue guidance for the holiday quarter, but on a conference call with investors executives were asked repeatedly for some kind of update. Segal said October “has a similar setup as September,” a suggestion that the period was starting on a positive note.

He did warn that November would be harder to predict due to uncertainty surrounding the U.S. election.

“When advertisers do choose to pause or slow down because there is a more important discussion happening on our service, when they come back they often spend through that budget that they had set aside for Twitter because their objectives and their reach goals haven't changed,” Segal said.

Sales increased 14% to $936 million in the period ended Sept. 30, Twitter reported on Thursday. It was the biggest jump since the second quarter of 2019. Analysts projected a 5% decline to $780.5 million, according to data compiled by Bloomberg. In the letter to shareholders, Twitter cited the return of live events, such as professional sports, and product improvements as key drivers.

Twitter said in July that it was exploring additional business lines, including subscriptions and “managing pay walls,” but those efforts weren't highlighted in the shareholder letter.

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First Published Date: 30 Oct, 20:13 IST