Twitter Inc. TWTR -19.04% shares plunged Thursday as software problems led some advertisers to pull back spending and weaker-than-expected summer ad buying weighed on revenue growth in the latest quarter.
Shares in the social-media company plunged roughly 19% in morning trading Thursday as revenue and profit in the third quarter fell short of Wall Street expectations, and the company’s outlook for the current quarter trailed analysts’ forecasts.
Twitter said the number of people who use its platform daily increased by six million from the second quarter to 145 million. The improvement follows changes designed to serve users more relevant content, enabling them to follow topics of interest. Analysts polled by FactSet had estimated Twitter would add roughly three million daily users.
Revenue rose 9% from a year ago to $824 million, marking the smallest annual increase since late 2017 and below the $873.9 million that analysts polled by FactSet were expecting. The company said weaker-than-expected spending in July and August hurt its performance as well as the malfunctions in software that provides advertisers with data that helps them target certain groups of users.
“Unfortunately we had some missteps,” Twitter Chief Executive Jack Dorsey said on a call with analysts, adding that the problems that plagued the company’s advertising business were identified quickly and have been fixed. “I have a lot more confidence in our abilities and our team today than looking back just two years ago. We have a lot more agility.”
ScanMyPhotos.com Inc. paused ad spending on Twitter after thousands of dollars spent on campaigns failed to yield any orders. “I didn’t know there was a glitch and didn’t get any message from them that there was a problem,” said Mitch Goldstone, the company’s CEO.
Twitter’s third-quarter profit totaled $37 million, or 5 cents a share, down from $789.2 million, or $1.02 a share, in the prior-year period; the 2018 third quarter included a large tax benefit.
Excluding certain items such as stock-based compensation, profit was 14 cents a share, down from 21 cents a share a year earlier. Analysts had expected an adjusted profit of 20 cents a share.
“Advertising is very high-margin revenue, so when your advertising isn’t growing as fast, your profitability will be impacted by a greater amount,” said JMP Securities analyst Ron Josey.
SHARE YOUR THOUGHTS
Are you spending more or less time on Twitter now than in previous months? Why do you think that is? Join the conversation below.
The problems with Twitter’s ad business came as a surprise to most analysts, said Cascend analyst Eric Ross. “No one was talking about this,” he said. “The results were much worse from a revenue-per-user standpoint than we were expecting. This is shocking given the growth in daily active users.”
Given that digital advertising in general is still a growing category, Twitter’s performance suggests it is more vulnerable to seasonal events than its peers, MoffettNathanson analyst Michael Nathanson said. “It’s sounding more like a media company than an online company,” he said.
The technical snafu also raises questions about Twitter’s ability to handle safety and security, Mr. Nathanson said.
Twitter has dealt in recent months with several instances of hacks on the accounts of celebrities and high-profile users including Mr. Dorsey, raising concerns over how secure the company’s protections are for users.
The company has been bulking up its workforce this year to support its growth and work on issues including security of the social network. By the end of December, Twitter said it expects its employment base to be 20% larger than the was a year earlier.
Earlier this week, Snap Inc. said the number of daily Snapchat users rose by seven million in the third quarter to 210 million, though that growth was smaller than the 13 million users it gained in the second quarter. Average revenue per user—a key gauge reflecting the health of Snap’s ad business—also grew at the slowest year over year pace since the company went public in 2017.
Facebook Inc. is slated to release its quarterly report next week. In the second quarter, the company counted 1.59 billion people who used its “blue” app, its oldest and largest product.
For the fourth quarter, Twitter said it expects revenue of between $940 million and $1.01 billion, compared with $909 million in the final quarter of 2018. The company said it anticipates the issues that plagued the ad business in the July through September period to continue in the current quarter. Analysts polled by FactSet were expecting $1.05 billion in revenue.
Write to Sarah E. Needleman at email@example.com
Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8