Social media giant Twitter (NASDAQ: TWTR) saw its share prices plunge on Thursday after it announces its quarterly financial results. The most notable thing in the report was that its overall revenues were substantially hurt due to a supposedly one-time technical bug in regard to its advertising system.
While management has reassured investors, this was only a singular incident, analysts and shareholders alike are worried that if a single technical glitch caused such an impact to the company’s financials, could it happen again?
Twitter reported $824 million in quarterly revenue, a reasonable increase from the $758 million reported a year ago but still falling short of Wall Street’s expected $874 million.
Specifically, management said that a bug related to how it targets ads to customers as well how marketers can measure the effectiveness of campaigns was significantly affected by the glitch, forcing the company to turn off the setting. Overall, the setting ended up reducing year-over-year revenue growth by over 3 percent, a significant financial hit for what amounted to a single technical issue.
While missing revenue expectations is bad enough in and of itself, when coupled with this technical glitch, analysts are now beginning to be a bit more worried about the social media giant’s future.
“We view Twitter’s issues during Q3/Q4 as largely internal, self-inflicted, and (probably) fixable over the near term,” wrote MKM Partners analyst Rohit Kulkarni in a note to clients on Thursday. “However, amplified impact on revenues due to a one-time technical bug makes us wonder whether one can confidently have a view on Twitter’s long-term potential. Twitter’s turnaround has clearly hit a small detour, in our opinion.”
Another analyst, Hao Yan from Citigroup, added that short-term revenue headwinds are expected to stay and that this revenue setback was completely unexpected. While some institutions, like Loop Capital Markets, still holds a “buy” rating and a $55 price target for Twitter, others aren’t so optimistic. MKM Partners has a “neutral” rating on Twitter, with only a $44 per share price target.
The only positive in Twitter’s recent financial results was the increase in its monetizable daily active users (mDAUs), one of the most important metrics for the company in terms of its user base and marketing effectiveness. The social media giant had 145 million mDAUs in the quarter, an increase from the 139 million seen back in the previous quarter, an increase that was reasonably impressive for analysts but not enough to overshadow the rest of the bad news.
Shares of Twitter fell by 20.8% on Thursday in response to the news, marking a new six-month low for the company as well as one of the worst single-day declines in years for the social media giant.
Twitter Company Profile
Twitter is an open distribution platform for and a conversational platform around short-form text (a maximum of 140 characters), image, and video content. Its users can create different social networks based on their interests, thereby creating an interest graph. Many prominent celebrities and public figures have Twitter accounts. Twitter generates revenue from advertising (90%) and licensing the user data that it compiles (10%). – Warrior Trading News
