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Oct 29, 2020

Twitter added just a million users, falling short of estimates

Analyst outlook on tech earnings


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Twitter Inc. said it added just a million new daily users in the third quarter, far fewer than analysts estimated, dashing optimism that the social network would benefit from a return of live sports and the coming U.S. election. The stock plummeted about 15 per cent in extended trading.

The company reported 187 million daily users at the end of the quarter, an increase of 29 per cent from last year, but a paltry gain over the previous period. By comparison, Twitter added 20 million new users in the second quarter.

Advertisers, however, flocked back to the San Francisco-based company in the third quarter, driving sales well above analysts’ estimates, in a sign the digital advertising business is returning following the outbreak of the global pandemic.

Twitter is one of three internet companies under intense pressure from U.S. officials over their treatment of political content. Twitter’s chief executive officer, Jack Dorsey, testified alongside the heads of Facebook Inc. and Google at a Senate panel on Wednesday. In the results Thursday, the company didn’t give a forecast for the holiday quarter but suggested that uncertainty around the election could impact the business.

“It is hard to predict how advertiser behavior could change,” the company wrote in its shareholder letter. “In Q2, many brands slowed or paused spend in reaction to U.S. civil unrest, only to increase spend relatively quickly thereafter in an effort to catch up.”

There was some concern that Twitter’s business would be affected by a wide-ranging ad boycott in July, when a number of high-profile brand marketers pulled spending from social media companies over frustration with their content policies.

Twitter, unlike Facebook, has long been dependent on live events and large brand advertisers for business but said in April it also needed to improve its direct-response ad product, which is typically more useful for e-commerce advertisers looking to drive immediate sales. At the time, Twitter executives called better execution on these kinds of ads a “top priority.”

But in the shareholder letter, Twitter said a new version of these types of ads is now delayed until 2021 so the company “can integrate expected new industry-standard mobile privacy requirements.” Ned Segal, the chief financial officer, confirmed that the delay is partly due to expected updates related to Apple Inc.’s iOS 14 software update. Some changes to Apple’s software will affect how online advertisers can track people around the web, but those changes have been postponed until early next year. Twitter is waiting to see how they are implemented, Segal said.

Sales increased 14 per cent to US$936 million in the period ended Sept. 30, Twitter said Thursday. It was the biggest jump since the second quarter of 2019. Analysts projected a 5 per cent decline to US$780.5 million, according to data compiled by Bloomberg. In the letter to shareholders, Twitter cited the return of live events, such as professional sports, and product improvements as key drivers of revenue.

Twitter said in July that it was exploring additional business lines, including subscriptions and “managing pay walls,” but those efforts were not highlighted in the shareholder letter.