Elon Musk is trying to back out of a $44 billion purchase of Twitter, and Twitter is locked in a court battle with him. An economic slowdown has forced the company to reduce its workforce. Its stock price has plummeted.
Twitter showed on Friday how many people had been affected by these hardships. The firm said in an earnings report that Mr. Musk’s uncertainties, combined with macroeconomic problems, had impacted its business. With advertisers fleeing the platform, Twitter’s quarterly revenue fell to a deficit for the first time since 2020.
Lackluster profit results fuel the Twitter-Elon Musk blame game that has been raging since the entrepreneur’s back-and-forth over whether he wants to purchase the social media site. Tesla CEO Elon Musk agreed to acquire Twitter in April and stated he planned to take the company private. The company’s income might double by 2028, and its user base could grow to 931 million people at the same time.
Yet Mr. Musk’s remarks on Twitter have been more vitriolic as the stock market has teetered, bringing Tesla shares — which are his primary source of income and have fallen by a third in value this year — down with it. Earlier this month, he announced that he was ending the contract. To finalise the transaction, Twitter has subsequently sued him and a five-day trial in Delaware Chancery Court is slated for October.
With an acquirer that no longer wants Twitter, a CEO and board of directors who want to get rid of it, and a workforce that is stuck in the middle, Forrester’s Mike Proulx says the company is in a precarious position.
According to Twitter’s earnings announcement, “advertising sector headwinds associated with the macroenvironment and uncertainties relating to the potential purchase of Twitter by an affiliate of Elon Musk” were to blame.
To sum up, second-quarter sales was down 1 percent year over year to $1.18 billion, a long cry from the year’s projected rise of 20 percent. From the first quarter to the second quarter, Twitter’s revenue declined by 2 percent, which approximately matches with the periods immediately before and after Mr. Musk’s takeover of the firm.
After making a $66 million profit a year earlier, the company’s net loss fell to $270 million as costs and expenditures rose.
One bright spot emerged. At 237.8 million daily active users, Twitter reported an increase of roughly 17 percent over the previous year.
Attempts to reach Mr. Musk for comment were met with an unreturned message.
It has been a difficult time for Twitter and other social media businesses in recent months. Fears of a recession and the conflict in the Ukraine have reduced ad expenditure, which is the main source of income for social media companies.
Snap, the company behind Snapchat, posted its slowest-ever quarterly growth and a bigger loss on Thursday. As a result of Friday’s 39% drop in Snap’s stock price, the company now has a market valuation of under $17 billion dollars.
Twitter’s and Snap’s profits might have a negative impact on other online companies that depend heavily on advertising revenue. Next Monday, Facebook’s parent firm Meta and Google will release their financial results.
As a result of Mr. Musk’s stated hatred of advertising and desire to loosen Twitter’s content moderation measures, Twitter’s advertisers are concerned about the prospective acquisition of the company by Mr. Musk.
In recent months, Twitter CEO Parag Agrawal has informed staff that the firm hasn’t lived up to its promise and has reduced expenses, sacked senior executives, and pushed people to disregard Elon Musk’s pyrotechnics.
A co-founder of research firm LightShed Partners, Rich Greenfield, says that even if a court forces Mr. Musk to take ownership of the company at his proposed price of $54.20 per share, the economic headwinds detailed by Twitter on Friday may not be a big concern to current shareholders should he be forced to take ownership of the company at that price.
Funny thing is that money doesn’t seem to matter to him. For the end of the day, it’s Elon’s issue if they sell the firm at $54.20. The market’s concern is irrelevant.”
On April 25, when the board of Twitter approved Elon Musk’s offer, the stock price of Twitter was $51.70. However, since then, the stock’s price has dipped below $40 on a monthly basis. Its shares fell by less than 1% in early Friday trade before rising by about 1% by the time the market closed.
Mr. Greenfield said that investors would only be worried about Twitter’s revenue if the sale fails and the company’s economic fundamentals are restored.
Twitter has also been accused by Mr. Musk of deceiving investors and undercounting the number of fake accounts on its service. If such accounts make up less than 5% of active users on their site, they are audited by a team of professionals, the corporation claims. This amount was confirmed by Twitter in its filing on Friday.
This dispute between Twitter and Elon Musk has been a thorny one for the social media company. After two quarters of not holding an earnings call with Wall Street analysts, the firm decided to avoid the awkward questions regarding Mr. Musk’s influence on the business.
Mr. Greenfield stated, “The firm is quite silent.” Since the last time investors spoke to the firm, “it had been months.”
At Tesla, Mr. Musk is also dealing with commercial difficulties. Due to supply chain delays and the rising price of Bitcoin, the automaker announced a drop in quarterly profits on Wednesday.