Please ensure Javascript is enabled for purposes of website accessibility

Why Twitter Stock Crashed 8.5% Today

By Rich Smith – Oct 27, 2021 at 1:09PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Twitter was supposed to report a profit. It reported a loss instead.

What happened

Investors dumped shares of Twitter (TWTR) 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.  

Big red arrow going down over a stock chart

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.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.