Twitter Ends Its Solid Performance With Worse Than Expected Earnings - adidas (OTC:ADDYY), Amazon.com (NASDAQ:AMZN)

Twitter Inc's TWTR stock has plunged after the company posted its worse-than-expected third quarter earnings. The company claims the quarter was heavily struck by ad targeting bugs and issues that weighted on its top and consequently bottom line. Furthermore, the social media platform warned that it will continue bleeding until the end of the year and possibly into 2020 so no wonder its shares dropped 20.8% after the report was released. All social media giants are dealing with some kind of an issue, but on the upside, the number of monetizable users that are active daily has grown to reach 145 million.

Third Quarter Earnings Report

Revenue was $823.7 million as opposed to the $874.0 million expected. But advertising revenue for the quarter amounted to $702 million which is 8% higher than a year earlier. The problem is that analysts expected $756 million. On a brighter note, total ad engagements increased 23% year over year, and cost per engagement dropped 12 percent.

Expenses grew 17% during the quarter and reached $780 million. They were triggered by researched and development investments as well as hiring costs as the company ended the quarter with 300 more employees, amounting to a team of 4,600 employees. And the company expects to keep spending as for the 2019 fiscal year, it will exceed the $487 million a year earlier with the expected range being between $550 million to $600 million. Despite the challenges, this quarter does validate the company's commitment to create long-term and sustainable growth. But to sum up, earnings per share were 3 cents less than the 20 cents Wall Street had expected.

Competitive Landscape

Facebook Inc. FB and Snap Inc. SNAP have recently ramped up their efforts to win over the younger generation, the so-called generation Z. Facebook's Instagram has launched several new features attempting to gain market share from its competitors as it has ‘cloned' several of Snapchat's features. So, with users only having 24 hours in a day, no wonder that ‘engagement' is the metric of success when it comes to competing in social media. On the other hand, Facebook is not missing on controversy, as Democrats are increasingly concerned how will the pioneer social media platform influence the 2020 elections. Lawmakers literally grilled Facebook's CEO for the company's new policy of not fact-checking or removing political ads that are misleading. The company is sticking to the belief that that is what Democracy is about and that it's up to its users to make that judgment. But then again, Facebook has been dealing with controversies since its very beginning. As a reminder, it is facing a $5 billion fine over the facial recognition lawsuit.

As for Snap Inc, the company's stock is under pressure despite the company reporting strong quarter earnings and research showing it is more popular with the Z generation teens than Facebook's Instagram that remained on second place. Snap has partnered with Adidas ADDYY by having its retro-style video game played inside the app. It has also added a feature on the e-commerce front by integrating Amazon.com, Inc.'s AMZN marketplace into Snapchat, allowing users to visually search for products and directly buy them. Despite another quarter of accelerating growth, some analysts fear that the company could run out of cash before achieving profitability due to its ongoing fight with Facebook.

But, investors can surely feel safer as the company had its strongest growth in five quarters with revenue rising 50% annually to $446 million. It has beaten estimates by $10 million, and shrunk its net loss gap to $227 million, from $325 million. It is clear that Snap will not achieve profitability anytime soon but these improvements at least eased the cash-burn rate concerns as its it negative free cash flow improved from $159 million from the same quarter last year to $84 million and is expected to further improve in the fourth quarter.

Outlook

This was quite a blow for Twitter that costed the company about $6 billion of its market cap, such a shame considering that before the earnings report, the company's shares were up 35% in 2019. With its competitors intensifying their efforts, there's a lot of work to be done on product improvement and to make the platform safer for its users so no wonder Twitter is upping its capital investment. Unfortunately, its solid year performance has ended, but the good thing is that its strategy is bringing in more active users. And according to many analysts, although Twitter heavily relies on advertising revenue, active users are what is truly driving the company. So, there is hope for Twitter, especially as it is making efforts to clean up its platform.

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