With the COVID-19 pandemic continuing to rage around the world and escalating within the U.S., companies are facing increased uncertainty and have been withdrawing or updating financial guidance accordingly. The latest major tech company to do so is Twitter (TWTR), which this week withdrew its forecast altogether due to the novel coronavirus crisis.
Here's what social media investors need to know.
Image source: Twitter. Image Copyright Atsushi Nakamichi for Twitter, Inc.
Revenue is now expected to decline
Twitter had originally issued guidance in early February that called for revenue in the first quarter of $825 million to $885 million, which would have represented growth of about 9% at the midpoint. Twitter now expects revenue in the first quarter to decline slightly year over year. Operating income was forecast at breakeven to $30 million, but now the company expects to post an operating loss even though it has been trying to cut costs to cope with the ongoing uncertainty.
The novel coronavirus outbreak is driving a huge increase in engagement as people stay home and look to the site for news and commentary from public health and government officials. Monetizable daily active users (mDAUs) have jumped to 164 million quarter to date, up from 152 million in the fourth quarter.
Data source: SEC filings. Chart by author.
However, Twitter has not been able to effectively monetize that usage, even though those users are "monetizable," as advertisers are pulling back on spending. There isn't much point in advertising many products that people can't go out to purchase.
"Twitter's purpose is to serve the public conversation, and in these trying times our work has never been more critical," CEO Jack Dorsey said in the release. "We're seeing a meaningful increase in people using Twitter, and our teams are demonstrating incredible resilience adapting to this unprecedented environment."
CFO Ned Segal also added that the crisis "has impacted Twitter's advertising revenue globally more significantly in the last few weeks." Twitter also axed its full-year guidance for stock-based compensation, head count growth, and capital expenditures.
The ad industry is "going to see a real impact"
The news comes shortly after eMarketer noted that the coronavirus had hurt ad spending within China and cut its forecast accordingly, including for digital advertisements. While China appears to have contained the virus following drastic measures, the impacts to the advertising market could serve as foreshadowing for other parts of the world where conditions are getting worse.
Facebook COO Sheryl Sandberg acknowledged last month that "the marketing industry is certainly going to see a real impact," and the broader market has been pricing in the possibility of a recession -- i.e., it's been tanking! -- so investors don't seem that surprised by Twitter pulling its guidance.
