Twitter stock drops by 20.56% on Friday, following the company’s report of weak guidance and decline in the growth of monthly active users, barely 24 hours after Facebook suffers its worst single-day share tumble.
After expunging about 70 million phony accounts in the months of May and June respectively, Twitter user base witnessed a huge decline, though Twitter chief financial officer Ned Segal said: "most of those (expunged accounts) were excluded from the reported metrics because they were not active on the platform for 30 days or more".
Twitter had also in recent times deactivated and removed fake Twitter accounts, a move that is close on the heels of the wrap of the second quarter and hence does not affect the monthly active users, which this report lays emphasis on. But Twitter had hinted a further decline in the number of monthly active users by next quarter.
As captured in a letter from Twitter to its shareholders:"As a result of our health work, decisions not to renew or move to paid SMS carrier relationships in certain markets, and our decision to allocate resources towards GDPR and health, MAU could decline on a sequential basis in Q3, based on our current level of visibility, we expect the decline to be mid-single-digit millions of MAU."
Even though the daily active users increased by 11 percent, Twitter was not specifically clear on the exact number, though it had reported 336 million monthly active users for the last quarter. As of the time the bell went off on Friday, Twitter had reported its second-quarter earnings: 17 cent earnings per share, revenue of $711 million and 335 monthly active users. The figures showed that Twitter performed even better than estimation by analysts, except the total number of monthly active users where FactSet and StreetAccount estimated higher; 338.5 million MAUs.
Twitter puts stock-based compensation expenses to hover between $300 million to $350 million for a whole year, a reduction from a range of $350 million to $450 million as previously expected. The capital expenditure is put to be between the range of $450 million to $500 million, an increase from a previous estimate of $375 million to $450 million. Twitter issued weak guidance as well, with adjusted EBITDA between $215 million and $235 million for the third quarter.
Twitter gave reasons for the setback
Having moved to paid SMS carrier relationships in certain markets where users have better access to Twitter or Twitter Lite, making changes to improve the "health" of the platform and some impact from GDPR, a set of regulations in the European Union intended to protect consumer data, was what Twitter anchors on as reasons for the setback. Twitter estimates a total of about a whopping three million accounts to have been affected by the above-mentioned reasons.
However, Twitter revenue increased by 24% year-over-year, with aggressive advertising gains. Raking in a whopping $601 million from its advertising revenue which is an impressive 23 percent increase between years. Twitter also recorded increases in its data licensing and other revenue churning businesses which stood at about 29 percent between years.