Twitter shares tank amid slowing user growth and ad uncertainty

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Twitter reported earnings for its third quarter on Thursday that beat analyst estimates on the top and bottom lines.

But it fell short of estimates on user growth.

Twitter’s earnings report comes one day after its CEO, Jack Dorsey, testified in front of the Senate Commerce Committee.

Twitter posted third-quarter earnings on Thursday that crushed analyst estimates on the top and bottom lines but fell short on user growth.

The strong showing comes as the company faces heightened scrutiny and the daunting challenge of handling posts around the 2020 U.S. election, an event it says brings uncertainty to advertiser behavior.

The stock fell as much as 16% after hours after gaining 8% during regular trading Thursday.

Here are the key numbers:

Earnings per share: 19 cents, adjusted vs. 6 cents expected, according to a Refinitiv survey of analysts

Revenue: $936 million vs. $777 million expected, according to Refinitiv

Monetizable daily active users (mDAUs): 187 million vs. 195 million expected, according to FactSet

Twitter grew its total mDAUs by just 1 million from last quarter to 187 million, falling shy of analysts’ expectations of 195 million mDAUs for the third quarter. That 187 million mDAUs in the quarter is still a 29% increase year over year.

Twitter ad revenue grew 15% year over year to $808 million, according to the report, with total ad engagement growing 27% over the same period.

The return of live events and previously postponed product launches helped drive the increased advertising spending, CFO Ned Segal said in a statement in the company’s earnings release.

The company warned that the upcoming U.S. presidential election makes advertiser behavior “hard to predict.”

“In Q2, many brands slowed or paused spend in reaction to US civil unrest, only to increase spend relatively quickly thereafter in an effort to catch up,” Twitter wrote in the release.

“The period surrounding the US election is somewhat uncertain, but we have no reason to believe that September’s revenue trends can’t continue, or even improve, outside of the election-related window.”

Segal compared the upcoming uncertainty to earlier protests for racial justice. He said that even though many advertisers paused spending at the time, they largely ended up coming back and spending through their budgets later on because their spending targets remained the same.

Segal alluded to speculation from last quarter that Twitter is working on a subscription service, which was initially sparked by a job posting for such a product. He said new ways to make money outside of advertising are not something he sees impacting revenue this year but that Twitter will begin testing out ideas soon.

Twitter discussed in its letter to shareholders its efforts to combat misinformation and provide context to users, especially with the uncertainty that could surround election results in the U.S. as mail-in ballots are expected to potentially prolong the outcome.

The company plans to label tweets that falsely claim a win for a candidate and will remove posts encouraging violence or election interference. Before users retweet a message labeled as misleading, they will be prompted to look at credible information on the subject. Those labeled tweets will be de-amplified by Twitter’s algorithm.

Twitter said it has already seen some success from its efforts to promote healthier conversations. During the third quarter, it began prompting users to read an article if they attempt to retweet it without clicking on the link. Twitter said people who retweet articles now open them 33% more often before they share since this process was added.

Twitter’s earnings report comes one day after its CEO, Jack Dorsey, testified in front of the Senate Commerce Committee. Dorsey and CEOs from Facebook and Google showed up to defend their legal liability shield, Section 230, from lawmakers keen to weaken it. The law protects platforms from being held responsible for their users’ posts and also allows them to moderate content they find to be objectionable.

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