Twitter is embroiled in a grueling legal battle with Elon Musk as he attempts to pull out of a $44 billion acquisition of the company. It has delayed hiring as it struggles with a faltering economy. The share price has fallen.
On Friday, Twitter revealed the toll of those challenges. In an earnings report, the company said the uncertainty caused by Mr. Musk had hurt his company, in addition to macroeconomic problems. Twitter’s quarterly revenue fell for the first time since 2020 as it struggled to be an advertiser destination and posted a net loss.
The lackluster earnings report heightens the blame game that has erupted between Twitter and Mr. Musk, who dove in and denounced the company’s lack of business and financial prospects as he went back and forth about buying the social media service. Mr. Musk, who also heads electric car maker Tesla, had agreed to buy Twitter in April and said he would take it private. He privately told investors that he could quadruple the company’s revenues by 2028 and expand to 931 million users that same year.
But as the stock market faltered and Tesla stock dragged — which is his main source of wealth and has lost a third of its value this year — Mr. Musk made increasingly tantalizing comments on Twitter. This month he switched to end the deal. Twitter has since sued him to complete the purchase, and a five-day trial to settle the matter is scheduled for October in Delaware Chancery Court.
“Twitter now has an acquirer that no longer wants it, it has a CEO and board of directors that want to get rid of it, and an employee base that’s in the middle,” said Mike Proulx, research director at Forrester. “None of this is good for Twitter.”
In its earnings statement, Twitter attributed the disappointing results to “advertising industry headwinds related to the macro environment and uncertainty surrounding the pending acquisition of Twitter by a subsidiary of Elon Musk.”
Overall, revenue was $1.18 billion for the second quarter, down 1 percent from a year earlier, a far cry from the 20 percent growth it had ever forecast for the year. Twitter’s revenue declined 2 percent from the first to the second quarter, roughly coinciding with the periods immediately before and after Mr. Musk joined the company.
The company’s net loss was $270 million, a big drop from a profit of $66 million a year earlier, as costs and expenses increased.
There was one bright spot. Twitter said it had 237.8 million daily active users who saw ads, up nearly 17 percent from a year earlier.
Mr Musk did not respond to a request for comment.
In recent months, Twitter and other social media companies have faced a bleak advertising market. Fears of an economic downturn and the war in Ukraine have curbed ad spend, which social media companies rely on for most of their revenues.
On Thursday, Snap, the maker of Snapchat, reported its lowest-ever quarterly growth and a larger loss. Shares of Snap fell more than 38 percent in early trading on Friday, pushing its market cap below $17 billion.
Twitter and Snap’s revenue could be bad for other internet companies that rely on advertising for the majority of their revenue. Meta, the parent company of Facebook, and Google will announce profits next week.
Twitter faces additional concerns from advertisers over the potential takeover by Mr. Musk, who has said he hates ads and wants to relax Twitter’s content moderation policy, which has prevented ads from running alongside offensive content.
Twitter CEO Parag Agrawal has told employees the company has failed to live up to its potential and cut costs, fired top executives and urged employees to ignore Mr. Musk’s fireworks in recent months.
Still, the economic headwinds described by Twitter Friday may not be a major concern for current shareholders if a court forces Mr. Musk to take ownership of the company at his proposed price of $54.20 a share, said Rich Greenfield, a co-founder of LightShed Partners, a research firm.
“The funny thing is, income doesn’t matter,” he said. “Ultimately, if they sell the company for $54.20, that’s Elon’s problem, not the market’s problem.”
Twitter’s stock price was $51.70 on April 25, the day the company’s board accepted Mr. Musk’s offer. But the stock has largely gone downhill since then, spending the past month below $40. The stock fell less than 1 percent in early trading Friday.
Investors will only worry about Twitter’s earnings if the deal collapses and the company’s business fundamentals regain importance, Mr Greenfield added. “If the deal falls apart completely, we know the stock would fall,” he said. “But the question is, ‘How much?'”
Mr. Musk has also accused Twitter of misleading investors and underestimating the inauthentic accounts on his platform. The company has said those accounts make up less than 5 percent of active users on its platform and that it uses experts to monitor the number. Twitter reiterated this figure in Friday’s submission.
As the battle with Mr. Musk unfolds, Twitter has tried to avoid the limelight. For the second quarter in a row, the company declined to hold an earnings call with Wall Street analysts, dodging any uncomfortable questions about Mr. Musk’s impact on the company that might have been asked.
“The company is extremely quiet,” said Mr Greenfield. “It’s been months since investors spoke to the company.”
Mr. Musk is also facing business concerns at Tesla. The automaker reported Wednesday that its quarterly profit had fallen due to supply chain delays and the price of Bitcoin, which the company had invested in.
