Twitter Loses a Fifth Of Its Market Cap On Huge Guidance Miss

Twitter shares are crashing in the premarket after Trump's favorite social network not only missed third-quarter revenue expectations but missed Q4 revenue expectations "bigly." With the social media company expecting headwinds from revenue product issues, such as advertising issues and product bugs to significantly weigh on overall performance through year-end, and as a resulted, Twitter now sees 4Q revenue of only $940 million to $1.01 billion, far below the consensus estimate $1.06 billion.

First, the historical stuff: Twitter’s Q3 adjusted EPS of 17 cents missed exp. of 20 cents, on revenue of $823.7 million, which while rising +8.7%, missed Wall Street's expectations of $875.6 million. More problematic is that 3Q adjusted Ebitda tumbled 11% to $262.8 million, badly missing the estimate of $303.1 million.

Twitter explained that 3Q revenue reflects headwinds, including revenue product issues and greater-than-expected advertising seasonality in July and August

But it was the company's guidance that opened a trapdoor below the company as Twitter now expects Q4 numbers that were simply dismal and it now appears that even with President Trump tweeting at a record pace this year, Twitter still can't get its business model right:

  •  Total revenue to be between $940 million and $1.01 billion, far below the $1.06BN expected
  • Operating income to be between $130 million and $170 million, also below the consensus estimate.

For full-year 2019, Twitter expects:

  • Capital expenditures to be at or near the low end of our previous guidance range of $550 million to $600 million
  • Stock-based compensation expense to be at or near the midpoint of our previous guidance range of $350 million to $400 million

This is what Twitter said to explain the huge guidance miss:

We have considered the rebound in our advertising business in September, the strength of our bookings, and the organic events and product and service launches expected in Q4, along with the lingering headwinds we expect from the previously discussed revenue product issues we experienced in Q3. 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.

"Specifically, we expect that, on a combined basis, moderated performance in MAP and the previously discussed issues in our personalization and data settings will likely result in 4 or more points of reduced year-over-year growth for total revenue in Q4, up from 3 or more points of impact in the third quarter. The increase reflects a fullquarter impact in Q4 vs. only a partial-quarter impact in Q3. These headwinds are incorporated in our outlook." 

Not even the company's modest user growth was enough to offset the guidance debacle: Twitter reported 145 million Daily Active Users in 3Q, up from the 139 million DAus in the previous quarter, but missing estimates of 145.5 million.

  • Average US mDAU was 30 million, compared to 26 million in the same period of the previous year and compared to 29 million in the previous quarter.
  • Average international mDAU was 115 million, compared to 98 million in the same period of the previous year and compared to 110 million in the previous quarter.

CFO Ned Segal told investors that "despite its challenges, this quarter validates our strategy of investing to drive long-term growth," adding that, "more work remains to deliver improved revenue products. We’ll continue to prioritize our ad products along with health and our investments to drive ongoing growth in mDAU.”

Markets disagreed and TWTR stock crashed 20%, as the company just lost a fifth of its market cap as much of the company's rally in 2019 is now wiped out.