Twitter Grows Daily Active Users to 145M, Stock Tanks on Earnings Miss, Ad "Bugs"

Jack Dorsey-Getty-H 2016
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The social media company, led by CEO Jack Dorsey, reported third-quarter financial results that missed Wall Street expectations.

Social media giant Twitter on Thursday reported lower third-quarter earnings and revenues due to advertising product "bugs," but improved user growth as it added 6 million daily active users.

The financials missed analysts' expectations, and the firm noted "a number of unexpected headwinds in our ads business," sending Twitter shares down 20 percent in pre-market trading.

The San Francisco-based social media company, led by CEO Jack Dorsey, reported adjusted earnings of 17 cents per share for the third quarter, compared with the Wall Street consensus of 20 cents.

Quarterly revenue was up 9 percent to $824 million, which fell short of the consensus estimate of $875.6 million.The company pointed to a "number of headwinds," including product issues and lower-than-expected advertising volumes in July and August, to explain the revenue shortfall.

During the latest quarter, Twitter also revealed it discovered and dealt with "bugs that primarily affected our legacy mobile application promotion product, impacting our ability to target ads and share data with measurement and ad partners. We also discovered that certain personalization and data settings were not operating as expected," which reduced revenue growth. "While we are taking steps to remediate these issues, we expect them to continue to weigh on the overall performance of our advertising business in the near term," Twitter said.

Dorsey during a morning analyst call also pointed to "some missteps and bugs in our MAP ads," which helps Twitter target advertising and share data with business partners. The MAP, or mobile app promotion, product enables advertisers to promote mobile apps on Twitter.

Twitter CFO Ned Segal added the ad MAP issues came up during the latest financial quarter. "Although we're working on remediation, there isn't remediation yet in place, so that will continue into Q4," Segal told analysts.

U.S. revenue came to $465 million in the latest period, with international revenue at $358 million. Total third-quarter advertising revenue rose 8 percent to $702 million as the company continues to face off with Snapchat and Facebook in the war for online advertising.

Twitter saw its daily active user (DAU) base, a new metric, rise to 145 million from 139 million in the second quarter and 134 million at the end of the first quarter of 2018. Analysts had forecast 141 million DAU users. Twitter is no longer reporting monthly active users as a metric as it looks to balance being able to measure its usage while removing fake or abusive content from its platform.

Dorsey pointed to efforts to reduce fake traffic as it pursues political advertising revenue from the upcoming 2020 U.S. presidential election. "We are paying a lot of attention to a lot of the dynamics in play, specifically looking at misinformation and misleading information," he said.

Shares in the company fell 20 percent to $31.07 in pre-market trading on the New York Stock Exchange as Wall Street analysts reacted to the earnings and revenue misses.

"Twitter’s momentum from the past several quarters has cooled," said eMarketer senior analyst Jasmine Enberg. "Despite the continued double-digit growth in monetizable daily active users, Twitter missed on revenue. The miss wasn’t just because of tough comparisons, which were expected to dampen their revenue growth, but issues with their ad product. That could impact their performance in the all-important fourth quarter."

5:45 a.m. Updated with comments by Twitter execs made during a morning analyst call.