There were high expectations for Twitter's
The consensus was that Twitter would benefit from these same trends, especially with the election season driving more engagement and interest on the platform. As a result, Twitter's stock was making new, all-time highs going into earnings season.
However, the company failed to meet these expectations and instead declined by 21%. It managed to beat expectations for the top and bottom-line but fell short in terms of user growth and ad spending.
Inside the Numbers
In the third quarter, Twitter's earnings came in at $0.19 per share which was a 10% increase from the previous year and well-above consensus expectations of $0.13 per share. Ad revenue increased 15% to $808 million, and total revenues were up 14% to $936.2 million. Both were above analysts' estimates.
The major miss was daily active users which increased by 29% from last year to 187 million. However, analysts were looking for 195 million. In the U.S., the number of users reached 36 million, while there are 152 million international users. The company expects ad spending and growth to remain strong into year-end as companies spend more on advertising for the holiday season.
Stock Price Impact
The miss for user growth was concerning to investors because it was a chance for Twitter to re-accelerate its growth with more people using digital services and social networks due to the coronavirus and lockdowns.
As a public company, Twitter has had a history of falling short of expectations. Everyone agrees that the company has considerable potential given its popularity among users, the ability to shift the public narrative, and heavy use among journalists and politicians. It hasn't been able to translate this into consistent earnings and revenue growth. Many blame it on Jack Dorsey's dual roles as CEO of two public companies.
Twitter's stock is basically flat since going public in 2013. Typically, stocks that miss earnings take time to recover as investors reprice the stock based on a flatter growth path. Another concern for Twitter is that Q3 was seemingly perfect given the political season, pandemic, and macro conditions. If Twitter can't achieve its growth targets in this environment, it's hard to imagine the company being successful when conditions deteriorate.
