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Twitter's stock plunges after Q3 earnings, users miss

Twitter’s (TWTR) shares plummeted on Thursday after it posted third-quarter results that missed expectations on nearly every key metric, as advertising growth decelerated sharply over last year and site activity slowed down during the summer.

Here were the main numbers from the report, compared to consensus expectations compiled by Bloomberg:

  • Revenue: $823.7 million vs. $875.6 million expected and $758.11 million YOY

  • Adjusted earnings per share: 17 cents vs. 20 cents expected and 21 cents YOY

  • Monetizable daily active users: 145 million vs. 145.5 million expected

Fourth-quarter sales guidance also came in light. The micro-blogging platform said it expects to see revenue of between $940 million and $1.01 billion in the final three months of the year, missing the Street’s expectation for $1.06 billion.

The results dragged down Twitter’s stock, which slumped more than 18% to $31.54 just after the opening bell Thursday. Twitter’s stock was up 35% for the year-to-date through Wednesday’s close.

Advertising revenue in the U.S. – which comprises the bulk of Twitter’s sales — increased just 11% in the third quarter over last year, slowing from 32% growth from the year-ago period. Monetizable daily active users — a closely followed measure of the site ability to generate money via user engagement — surged 17% year over year, but still fell short of Wall Street’s consensus forecast.

Twitter CEO Jack Dorsey addresses students during a town hall at the Indian Institute of Technology (IIT) in New Delhi, India, November 12, 2018. REUTERS/Anushree Fadnavis

In a letter to shareholders, Twitter blamed its estimates-missing third-quarter revenue on “a number of headwinds including revenue product issues and greater-than-expected advertising seasonality in July and August.” This in turn trickled down to weaker-than-expected bottom-line results, which Twitter said reflect “no significant changes” to its ongoing investments.

“In Q3 we discovered, and took steps to remediate, bugs that primarily affected our legacy Mobile Application Promotion (MAP) product, impacting our ability to target ads and share data with measurement and ad partners,” the company said. “We also discovered that certain personalization and data settings were not operating as expected.”

“We believe that, in aggregate, these issues reduced year-over-year revenue growth by 3 or more points in Q3.”

The Twitter App loads on an iPhone in this illustration photograph taken in Los Angeles, California, U.S., July 22, 2019. REUTERS/Mike Blake

Over the past year, Twitter has doubled down on efforts to remove spammy and bad actor accounts from the platform, investing in these health efforts in hopes of improving user and advertiser experiences over the long-term. Along those lines, Twitter said it proactively removed 50% of Tweets for abusive content in the third quarter, without needing to be flagged by another user. This was up 12 percentage points from the first quarter this year.

Last quarter, Twitter said it expected to see operating expenses increase 20% over last year during fiscal 2019, with health initiatives and ad product revamps comprising a large portion of these investments. In the third quarter, Twitter said it grew its headcount 21% in part to help with these efforts.

Prior to results, investors had largely been on board with this thesis despite the costs it’s created for the company.

“Health of the TWTR platform remains the company’s top priority, and we believe health work is creating a stronger user base from which TWTR can grow,” JPMorgan analyst Doug Anmuth wrote in a note ahead of Thursday’s report.

Twitter’s third-quarter results come on the heels of an estimates-topping report from peer social media giant Snap (SNAP). The strong sales, earnings and user growth from Snapchat’s parent company underscored a robust internet advertising market, teeing investors up to anticipate similarly strong results from Twitter.

Shares of Snap and Facebook (FB) declined after Twitter posted its results Thursday morning.

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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