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Twitter Q1 Stumbles With Anemic Advertising Sales Ahead of Elon Musk’s Takeover

Results dimmed by choppy advertising and slowing user growth mark another turbulent quarter for the social media giant ahead of the Tesla co-founder’s buyout

Twitter reported first-quarter profit beat Wall Street projections on Friday, but revenues floundered on anemic advertising sales and stagnant user growth. That bolsters Elon Musk’s argument that going private will help the social media company grow by eliminating the scrutiny and volatility of public markets.

The San Francisco-based social media giant posted a profit of $513 million, or 61 cents a share, on $1.2 billion in revenue. Wall Street projections had Twitter profit rising 5 cents a share on revenue of $1.22 billion after February’s warning ad sales would struggle for the second-straight quarter, though results bested the year ago’s earnings of $68 million as revenues popped $1.03 billion

Twitter reported getting 229 million average monetizable daily active users, up 15.9% from 214.7 million last year. Social media and entertainment companies reported the pandemic helped boost revenue user engagement during the pandemic, but the level of grow slowed — though the first quarter still was up by about 14 million from the 229 million daily active users in the quarter, which was about 14 million more from a revised 214.7 million daily users in the previous quarter.

Twitter corrected previously reported mDAU totals that overcounted some accounts from Q1 2019 through Q4 2021. It incorrectly reported roughly 1.4 million to 1.9 million extra users per quarter during that period after introducing a feature to let users switch between their linked accounts.

“It seems Elon Musk is buying Twitter at a time when the company is struggling to attract new users following the pandemic-driven surge,” Haris Anwar, senior analyst at Investing.com, said. “In addition, the macro environment is becoming hostile with advertisers curbing their spending as they deal with inflation, which is running at a four-decade high, and uncertainty about future growth with rising interest rates.”

Musk’s pitch before the board agreed to his $44 billion takeover was the only way to transform the company’s growth prospects was to eliminate a structure where management is beholden to shareholders. He said the stock market’s gyrations from short-term events like Thursday’s lackluster results is a result of investors’ influence on management, which reduces innovation.

The same shareholders Musk is referring to will still have to approve the deal once it gets the approval from U.S. regulators. There still remains doubt on Wall Street that the world’s richest human, with a habit of using the platform as a space to rant and provoke perceived enemies, still is opposed by Twitter employees who feel his free speech views will allow extremists to use the platform as a way to amplify hate speech.

Over the weekend, the billionaire CEO owner of publicly-traded electric car manufacturer Tesla met to discuss Musk’s recent offer to buy the company. Now the deal, which Twitter was expected to reject, is done. Twitter accepted a deal at $54.20 a share, or a roughly $44 billion valuation Monday afternoon. 

Nearly 90% of Twitter’s revenue is derived from advertising, which amounted to $4.5 billion out of a total revenue of some $5 billion in 2021. First-quarter ad revenue accounted for $1.11 billion, which impacted earnings results.

But times are uncertain for Twitter as a company. The deal that will take Twitter private is expected to close in 2022, pending regulatory approval from the Justice Department and Federal Trade Commission.

“These challenges, combined, make the job much harder for Musk to put Twitter on a sustainable growth path,” Anwar said. “But once the deal is closed, Twitter’s financial health will become Musk’s headache, with him planning to take the company private.”

Meanwhile, the social network may be poised for even bigger changes as Musk said he aims to implement content moderation changes and other features (Twitter confirmed it has been working on an edit button). The Tesla boss has also mentioned shifting to an open algorithm and cracking down on crypto scams.

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