Twitter takeover rumour grows as revenue slides
Social media company posted its eighth-straight quarter of sinking profit growth
SAN FRANCISCO— Pressure is building on Twitter, prompting growing speculation the company could become a takeover target, and its latest quarterly results did nothing to relieve it.
On Tuesday, Twitter chalked up another in a series of disappointing quarters, more evidence that measures put in place by CEO Jack Dorsey over the past year have done little to revive the struggling company’s fortunes. Twitter shares slid 11 per cent to $16.31 in extended trading.
Twitter appears to be losing favour not just with users, but advertisers as well. Twitter’s continued fumbles stand in stark contrast to the soaring fortunes of competitors Facebook, Instagram and Snapchat, which are racking up more eyeballs and ad dollars.
Asked whether Twitter should continue as an independent company, Dorsey said the past year at the helm has made him confident that Twitter is both a “service of importance” and a “business of importance” to be preserved.
“We have so much farther to go,” Dorsey told analysts during the second-quarter earnings call.
His remarks came after Twitter posted its eighth-straight quarter of shrinking revenue growth and another period of meagre user growth.
Twitter shares had climbed 34 per cent from a low of $13.73 on hope that Twitter would be bought out. Slowdown in user growth at professional networking service LinkedIn led to its $26.2-billion sale to Microsoft. On Monday, aging Internet pioneer Yahoo sold to Verizon for $4.8 billion.
“There’s lots of language in the shareholder letter about things taking time, and that’s been something of a theme since Dorsey took over,” said Jan Dawson, chief analyst with Jackdaw Research. “You’d have hoped there would have been more progress by now, and yet it still feels like the big message is: Coming soon.”
Twitter’s second-quarter revenue came in light at $602 million, up 20 per cent year over year, the smallest gain since the company went public and short of analyst estimates of $607.41 million. Twitter blamed the shortfall on increased compe- tition for social marketing budgets andits ads being too costly.
Third-quarter guidance was weaker than analysts expected, between $590 million and $610 million, compared to consensus of $678 million.
What’s more, user growth was again anemic. Twitter reported 313 million monthly active users, a net gain of three million users since the first quarter and 3 per cent increase year over year. Analysts had set low expectations for Twitter, with forecasts of adding one million to two million users in the quarter.
Over the past year, Dorsey has tried to attract new users and engage existing ones by making Twitter simpler and more appealing to use. The problem: more than a decade after it was founded, Twitter has still not adequately explained to people why they should use it. This week Twitter launched a marketing video, part of a campaign to better explain Twitter’s raison d’être: to tell you what’s happening and what people are talking about around the world.
Twitter is angling for growth with live video. In recent months, it has struck deals to live-stream games from the National Football League, Major League Baseball and National Hockey League. The wager: it will get advertising revenue and a bigger audience.
“We’re making the right decisions in our product,” Dorsey said during the earnings call, adding changes are on the way.
Another rub for investors as Dorsey’s turnaround attempt enters its second year: Twitter remains unprofitable. It posted a loss of $107.2 million, or 15 cents a share, compared with a loss of $136.7 million, or 21 cents a share, a year ago. Excluding certain expenses, Twitter said it would have earned 13 cents a share. Analysts expected earnings of 9 cents a share.
“Shocking” is how Wedbush Securities analyst Michael Pachter described the quarterly performance.
“Who would invest in a company with no revenue growth and no profit?” Pachter said. He noted Twitter’s outlook is for flat revenue growth quarter to quarter.
In the meantime, Twitter is spending all of its would-be profits on unusually high stock-based compensation, Pachter said.
“They’ll tell you that’s what it costs to get top-notch talent. But if you have topnotch talent that can’t deliver a profit, what’s the point?” Pachter said. “This is not a Bernie Sanders-led social enterprise.”