Twitter Inc. users flocked to the service in record numbers last quarter to stay informed on the global pandemic, but economic fallout from the virus wreaked havoc on advertising, the social media company’s main source of revenue. Shares tumbled.
Sales rose just 3% in the first three months of 2020, the smallest increase in more than two years, amid a broad advertising pullback as companies cut spending. From March 11 to the end of the quarter alone, sales plummeted 27% from a year earlier, and April shows a similar trajectory, the company said. The decline was particularly pronounced in the U.S., Twitter’s most valuable market. Revenue climbed to $808 million, beating Wall Street estimates of $773 million.
The stock fell 7.8% to close at $28.68, the biggest one-day decline since March 18.
Like results from other social platforms including Snap Inc. and Facebook Inc., Twitter’s numbers challenge the longstanding notion that an increase in users correlates to a similar rise in ad revenue. Twitter now has 166 million daily users, up from 152 million at the end of 2019, and 24% higher than a year earlier. That’s the fastest growth since the company started reporting the metric in 2016. Twitter credited the gains to “typical seasonal strength, ongoing product improvements, and global conversation related to the COVID-19 pandemic.” Twitter shares turned negative after Chief Financial Officer Ned Segal gave the April outlook on an earnings call, after being up more than 10% earlier.
Facebook reported a similar take on Wednesday, warning of the “potential for an even more severe advertising industry contraction.”
Twitter said Thursday that improving its ad products is now the company’s “top priority,” and that direct response ads are at the top of the list. In a letter to shareholders, the company said these marketing spots could “increase our addressable market, with more access to advertising demand that may be more resilient through an economic downturn.”
Segal said Twitter has mostly attracted brand marketing, rather than “direct response” ads that are easier to measure, grow faster and have been more resilient during the crisis so far.
Twitter reported a net loss of $8 million, its first unprofitable quarter in more than two years, though less than analysts had expected. The company previously announced it was cutting full-year guidance and expected an operating loss in the quarter. It did not issue new guidance on Thursday.
The San Francisco-based company plans to reduce costs by slowing hiring and eliminating travel and events that are no longer necessary because employees are working from home. It still plans to build a new data center in 2020 as was previously announced.
Not addressed in Twitter’s shareholder letter was whether the recession threatens Chief Executive Officer Jack Dorsey’s job. Activist investors tried to push him out earlier this year. Dorsey survived, but the two sides agreed to a series of performance goals that include accelerating revenue growth. The coronavirus outbreak will make that particularly difficult.
For more articles like this, please visit us at bloomberg.com
Subscribe now to stay ahead with the most trusted business news source.
©2020 Bloomberg L.P.