Twitter posted third-quarter 2019 results that fell below targets, blaming snafus in its advertising products for part of the sales shortfall, sending the social network company’s stock plunging as much as 20% in pre-market trading.
Revenue totaled $824 million, up 9%, under the $874 million Wall Street analysts anticipated on average. Twitter said sales were hurt by advertising “product issues,” which the company said reduced year-over-year growth by 3 or more points, along with greater-than-expected seasonality. It reported net income of $37 million, working out to an adjusted 17 cents per share, missing analyst expectations of EPS of 20 cents.
The company did manage to net a gain of 6 million “average monetizable daily active users,” it metric for tracking Twitter users. Monetizable DAUs were 145 million in Q3, up from 139 million the prior quarter and up 17% versus the year-earlier period. Average U.S. mDAUs were 30 million, compared with 26 million in the same period of the previous year and up just 1 million from the previous quarter.
Twitter is addressing the problems with the advertising products, CEO Jack Dorsey said on a call with analysts, which “are still painful, but not existential as they were in the past.”
According to Twitter, in Q3 it discovered several advertising-product glitches. The bugs, which the company said it’s fixing, primarily affected the legacy Mobile Application Promotion (MAP) product, hindering Twitter’s ability to target ads and share data with measurement and ad partners. One of the problems: As Twitter disclosed earlier this month, it discovered that when new users provided an email address or phone number for safety or security purposes (i.e., two-factor authentication) the data “may have inadvertently been used for advertising purposes,” so Twitter disabled that function — hurting its ability to serve targeted ads. In addition, Twitter found that certain personalization and data settings “were not operating as expected.”
CFO Ned Segal said in prepared remarks that “Despite its challenges, this quarter validates our strategy of investing to drive long-term growth.” He acknowledged that Twitter needs to prioritize is ad products along with its investment in the health and safety of the platform.
Twitter credited the DAU growth with ongoing product improvements. At the beginning of Q3, Twitter began rolling out design changes to web interface which are designed to more prominently feature trends, events and accounts based on a user’s existing interests, along with streamlined navigation and sign-up process. Among other new features, Twitter in Q3 added the ability for users to pin up to five lists alongside their Home timeline on iOS.
“We’re continuing to improve relevance while testing ways to make it easier for people to find what they are looking for on Twitter,” Dorsey said in prepared remarks. He also claimed Twitter is making progress to improve the platform’s health by improving its ability to proactively identify and remove abusive content, “with more than 50% of the tweets removed for abusive content in Q3 taken down without a bystander or first-person report.”
For Q4, Twitter’s guidance topped analyst expectations. The company is guiding total revenue to be between $940 million and $1.01 billion and operating income to be between $130 million and $170 million.
According to Twitter, in providing the Q4 guidance, it factored in a “rebound in our advertising business in September” and strong bookings along with the upcoming events and product and service launches expected in Q4. It also said it expected “lingering headwinds” from the advertising-product problems that hurt its Q3 results.