Twitter Shares Pummeled On Mediocre 2019 Forecast

Twitter Inc. took a beating on Wall Street Thursday after reporting a disheartening drop in users for the fourth quarter of 2018. It also forecast first-quarter revenue below Wall Street estimates.

Equity markets reacted to the grim news by kicking Twitter's shares into the basement by 8 percent in early trading.

Twitter said it expected total Q1 revenue to range anywhere from $715 million to $775 million, which was below the $765 million average estimated by analysts, according to Refinitiv. It also expects operating expenses to balloon by some 20 percent year-on-year in 2019 due to its campaign to improve the health of its platform. This figure was larger than analysts’ average estimate of 12 percent.

Some analysts said they’ve known for a while Twitter has a fake-users problem and is trying to deal with it. There’s also the fact that total user numbers are down. Given these realities, they aren’t surprised in the 20 percent jump in operating expenses.

Higher operating expenses, however, are a huge problem since they’ll considerably shrink margins and profits in 2019.

Twitter projected capital expenditures from $550 million to $600 million, which was far higher than analysts’ average estimate of $415 million for the year.

Twitter said its number of average daily active users exposed to Twitter ads rose to 126 million in Q4 from 115 million in Q4 2017 and 124 million in the Q3 2018.

Monthly active users came to 321 million. That was in line with analysts’ forecasts, but lower than 330 million from a year earlier and 326 million in Q3 2018.

Twitter stunned analysts, and opened the door to destructive speculation, by announcing it will stop disclosing monthly active users (MAU) starting this second quarter. MAU is a de facto standard among internet companies in reporting their operating results and has been in use over the last 10 years.

The upside for Twitter, however, is to be found in 2018. The social media firm revealed a better-than-expected 24 percent increase in Q4 revenue, thanks mainly to growth in its video advertising business.

Overall revenue rose to $909 million in the quarter, easily beating the analysts’ estimate of $868.2 million. Excluding some items, Twitter reported a quarterly profit of $0.31 per share, beating the average estimate of $0.25.

Total advertising revenue jumped 23 percent to $791 million. Twitter said more than half this revenue came from video ads placed by corporate clients.

Revenue from data licensing and other non-advertising businesses rose 35 percent to $117 million from a year earlier.