What happened
Investors dumped shares of Twitter (TWTR +0.00%) for an 8.5% loss through 12:30 p.m. EDT after the social media star reported a surprise "adjusted" loss for its fiscal Q3 2021 -- where investors had expected a profit.
Heading into Q3, analysts had forecast that Twitter would earn a pro forma profit of at least $0.15 for the quarter on sales of $1.28 billion. As it turned out, Twitter nailed that revenue forecast -- but instead of a profit, it reported a $0.54-per-share "adjusted" loss.
Image source: Getty Images.
So what
The news wasn't all bad. Twitter CEO Jack Dorsey noted that "average monetizable DAU (mDAU) reached 211 million, up 13% year over year in Q3" and faster than the 11% pace of growth seen in Q2. Revenue surged 37% to hit the Street's target, with "strength across all major products and geographies," said Twitter CFO Ned Segal.
Nevertheless, the news was bad enough. Not only did Twitter miss analyst targets for adjusted losses with its $0.54 pro forma loss, but when calculated according to generally accepted accounting principles (GAAP), Twitter's net loss for the quarter came in at an even worse $0.67 per share after subtraction of the costs of a $766 million charge to earnings for a "one-time litigation-related" expense.
Free cash flow was also negative for the quarter -- negative $20 million, due to "infrastructure investments in data center build-outs to support audience growth and product innovation" as well as "30%+ headcount growth" this year.
Now what
And so, while Twitter succeeded in hitting analyst targets for revenue growth, that growth came at a cost -- negative FCF and even more negative earnings.
The good news is that Twitter says it hopes to grow total revenue "faster than expenses" over the balance of 2021. Management is now forecasting that Q4 revenue will range from $1.5 billion to $1.6 billion, with positive operating profits of between $130 million and $180 million.
The bad news is that, with stock-based compensation expense "expected to be approximately $175 million" and capital spending expected to be between $85 million and $135 million, Twitter is almost certain to lose money again in Q4.
Investors just have to hope it won't lose quite as much money as it just lost in Q3.
