Twitter blames Elon Musk and advertising slump for revenue miss

Twitter has blamed a slump in digital advertising spending and “uncertainty” over Elon Musk’s on-off pursuit of the social media company for a fall in second-quarter revenues.

The San Francisco-based group is seeking to enforce a $44bn sale to Musk in a Delaware court, after the Tesla chief executive put the deal on hold in May and officially attempted to exit it this month.

On Friday, reporting results for three months to the end of June, the social media platform blamed the turmoil around the prospective takeover as among the reasons that revenues decreased 1 per cent to $1.18bn.

Twitter said the lacklustre results compared with the same period a year earlier reflected “advertising industry headwinds associated with the macroenvironment, as well as uncertainty related to the pending acquisition of Twitter by an affiliate of Elon Musk”.

The figures missed analyst expectations of a rise in revenues to $1.3bn, according to data compiled by S&P Capital IQ. Twitter said that, on a constant currency basis, revenues increased 2 per cent.

Twitter’s results come a day after social media rival Snap lost more than a quarter of its value after missing revenue and profit expectations, and announced plans to slow hiring and shake up its business strategy as a result.

After a pandemic-related boost to business, social media platforms have been suffering as brands increasingly curb their digital ad spending given rising interest rates and inflation, coupled with supply chain woes.

Costs and expenses at Twitter have also surged, rising 31 per cent to $1.52bn, with more than $33mn spent on issues related to the Musk acquisition in the second quarter.

Severance-related costs were about $19mn in this period. The company has been going through a restructuring and announced it would be laying off a third of its talent acquisition team at the beginning of this month.

The company’s net loss was $270mn, compared with a net income of $66mn in the same period last year. 

Social media groups such as Twitter have also been hurt by rising competition from apps including viral video platform TikTok, and by Apple privacy changes that have made it harder to target advertising and measure the success of campaigns ⁠— prompting hiring freezes and cost-cutting measures.

Twitter’s monetisable daily active users (mDAU), its unique metric for tracking its audience, stood at 237.8mn, above analysts’ estimates of 236mn. This included year-on-year user growth of 14.7 per cent in the US and 17 per cent in the rest of the world.

At its last earnings in April, Twitter admitted to overstating its audience figures by almost 2mn users for about three years, due to what it called an “error”.

Shares in Twitter fell about 2 per cent in pre-market trading to $38.60, staying far below the $54.20 per share price at which Musk originally agreed to buy the company.

Twitter is heading for a courtroom showdown with Musk, after the billionaire entrepreneur attempted to terminate the deal, citing concerns over the number of fake accounts on the platform. 

Twitter is suing Musk in the Delaware court of chancery to force him to close the transaction, arguing that the world’s richest man repeatedly breached the merger agreement, for example by publicly disparaging the company on the platform itself.

“Twitter believes that Mr Musk’s purported termination is invalid and wrongful, and the merger agreement remains in effect,” the company said on Friday.

Fake or spam accounts represented fewer than 5 per cent of its mDAU during the quarter, the company added.

Twitter clinched a mini-victory on Tuesday when the judge granted its request for a fast-track trial, now set for October, accusing Musk of “attempted sabotage” of the company and generating uncertainty that inflicted harm on it “every hour of every day”. 

Given the deal, the company did not host its usual conference call with analysts or give outlook guidance.

“Twitter is in a kind of purgatory right now. The future of the company and the product is in question,” said Mike Proulx at technology research company Forrester.

“Twitter now has an acquirer who no longer wants it, a CEO and board who wants to get rid of it, and an employee base who’s caught in the middle of it all as their morale plummets.”

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