Twitter shares plunge as privacy issues slow sales growth

Twitter plunged the most in more than a year after reporting quarterly results that fell far short of Wall Street's estimates, and saying privacy issues involving its advertising business will continue to weigh on its performance.

Third-quarter sales increased 8.6 per cent to $823.7 million, well short of the $876 million analysts estimated. Sales in the period ending in December will be $940 million to $1.01 billion, the San Francisco-based company said Thursday in a statement. Analysts projected $1.06 billion.

In a letter to shareholders, the social-media company blamed “greater-than-expected advertising seasonality” in July and August for the third-quarter results, and also referenced “revenue product issues” that reduced sales by three or more percentage points.

Chief financial officer Ned Segal explained on a conference call that Twitter had previously been collecting device information from people it wasn't supposed to and using it for targeting advertising. The setting to collect this information was "not working as expected", he said, adding that Twitter also shared data with advertisers it wasn't supposed to for measurement purposes.

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Since it stopped the practice in early August, removing that data from the advertising arsenal hurt the company’s business. Twitter referred to the issue as “bugs”.

The impact on Twitter’s business will likely bleed into results in 2020, Mr Segal added.

User growth, on the other hand, provided a positive note for Twitter, which has historically struggled to increase its audience despite widespread social and cultural awareness. The company added six million new daily active users to 145 million in the third quarter, a 17 per cent increase from a year earlier and a 4 per cent gain from the previous quarter.

“Despite its challenges, this quarter validates our strategy of investing to drive long-term growth,” Segal said in a statement. “More work remains to deliver improved revenue products. We’ll continue to prioritise our ad products along with health and our investments to drive ongoing growth” in monetiseable daily active users.

The problems with mobile app promotion in the third quarter don't necessarily signal a broader weakness in the ad market, since user engagement remains strong, according to Jitendra Waral, a Bloomberg Intelligence analyst. "US presidential-election traffic and the 2020 Olympics should reboot revenue growth as Twitter works through measurement bugs in 4Q."

Twitter reported profit, excluding some items, of 17 US cents a share, compared with analysts’ estimates of 20 cents. The company increased its costs and expenses by 17 per cent as it hired new workers.

Twitter's user growth has fueled a share increase of 35 per cent this year to $38.83 through Wednesday's close in New York. But the shares plunged as much as 20 per cent Thursday morning, the most intraday since July 2018, dragging down Snap as well. The Snapchat parent reported a strong third quarter earlier this week but gave a tepid forecast for the current period. Facebook, the biggest of the social media companies, reports earnings next week.

Chief executive Jack Dorsey has been making a concerted effort to clean up the service and make it easier for users to have conversations with one another. One of Twitter's top product initiatives is to help people find more content that they might find interesting, even if they don't know which specific users they should follow. The company started testing the ability for users to follow specific topics last quarter, like sports or gaming. It will continue that test, with plans to add more categories such as celebrities and television shows moving forward.

The effort is aimed at one of Twitter’s biggest issues, which is helping new and existing users find new content outside of their existing network.

Dorsey was asked about Twitter’s political-ad policy, given the current interest in the topic after Facebook said it wouldn’t fact-check ads from politicians. Political advertising is very small on Twitter – Mr Segal said the company made just $3 million in revenue from ads around the 2018 midterm elections – but there has been a lot of discussion about Facebook’s highly controversial policy. Mr Dorsey said that elections and the kinds of conversations surrounding them are the “first priority” within Twitter’s efforts to improve Twitter’s health. – Bloomberg