Twitter, embroiled in a grueling legal battle with Elon Musk as he attempts to pull out of a $44 billion acquisition of the company, revealed Friday what could be even deeper problems for his company as it struggles to find a destination for advertisers and a profit.
The social media company reported second-quarter revenue of $1.18 billion, down 1 percent from a year earlier. That’s a long way from the 20 percent growth rate ever forecast for the year. As costs and expenses increased, the company reported a net loss of $270 million, a big downward move compared to a profit of $66 million in the year-ago quarter.
Financial analysts had expected revenue of approximately $1.3 billion. Twitter’s stock price fell during premarket trading but opened roughly flat on Friday.
The company said it had 237.8 million daily active users who saw ads, up nearly 17 percent from a year earlier.
The meager earnings report could fuel Mr Musk’s desire to end his deal to buy Twitter. Mr. Musk, who also heads electric car maker Tesla, agreed to buy Twitter in April and said he would take it private. He privately told investors that he could quadruple the company’s revenues by 2028 and expand to 931 million users that same year.
Read more about Elon Musk and Twitter
But as the stock market faltered and Tesla stock dragged — which is his main source of wealth and has lost a third of its value this year — Mr. Musk made increasingly tantalizing comments on Twitter. This month he switched to end the deal. Twitter has since sued him to complete the purchase, and a five-day trial to settle the matter is scheduled for October in Delaware Chancery Court.
“Twitter now has an acquirer that no longer wants it, it has a CEO and board of directors that want to get rid of it, and an employee base that’s in the middle,” said Mike Proulx, research director at Forrester. “None of this is good for Twitter.”
In its earnings statement, Twitter attributed the disappointing results to “advertising industry headwinds related to the macro environment and uncertainty surrounding the pending acquisition of Twitter by a subsidiary of Elon Musk.” Twitter revenue declined 2 percent between the first and second quarters, roughly coinciding with the periods immediately before and after Mr. Musk joined the company.
In recent months, Twitter and other social media companies have faced a bleak advertising market. Fears of an economic downturn and the war in Ukraine have curbed ad spend, which social media companies rely on for most of their revenues. On Thursday, Snap, the maker of Snapchat, reported its lowest-ever quarterly growth and a larger loss, pushing its shares down 26 percent in after-hours trading.
Twitter faces additional concerns from advertisers over the potential takeover by Mr. Musk, who has said he hates ads and wants to relax Twitter’s content moderation policy, which has prevented ads from running alongside offensive content.
The economic headwinds described by Twitter on Friday won’t be a major concern to current shareholders if a court forces Mr. Musk to take ownership of the company at his proposed price of $54.20 a share.
“The funny thing is, income doesn’t really matter,” said Rich Greenfield, co-founder of LightShed Partners, a research firm. “Ultimately, if they sell the company for $54.20, that’s Elon’s problem, not the market’s problem.”
Twitter’s stock price was $51.70 on April 25, the day the company’s board accepted Mr. Musk’s offer. But the stock has gone downhill almost since then, spending below $40 in the past month.
Investors will only worry about Twitter’s earnings if the deal collapses and the company’s business fundamentals regain importance, Mr Greenfield added. “If the deal falls apart completely, we know the stock would fall,” he said. “But the question is, ‘How much?'”
Mr. Musk has also accused Twitter of misleading investors and underestimating the inauthentic accounts on his platform. The company has said those accounts make up less than 5 percent of active users on its platform and that it uses experts to monitor the number. Twitter reiterated this figure in Friday’s submission.
As the battle with Mr. Musk unfolds, Twitter has tried to avoid the limelight. For the second straight quarter, the company declined to hold an earnings call with Wall Street analysts, dodging the uncomfortable questions about Mr. Musk’s impact on the company that may have been asked.
“The company is extremely quiet,” said Mr Greenfield. “It’s been months since investors spoke to the company.”
Mr. Musk is also facing business concerns at Tesla. The automaker reported Wednesday that its quarterly profit had fallen due to supply chain delays and the price of Bitcoin, which the company had invested in.
