Twitter shares drop after Q2 net loss amid Elon Musk deal uncertainty

The platform's total revenue fell by 1% to almost $1.2bn in the three months to June 30

In April, Twitter entered an agreement to be acquired by an entity wholly owned by Elon Musk for $54.2 per share in cash. Last week, Twitter's stock declined, from more than $50 a share when the deal was announced in April, to as low as $32.55. Getty
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Twitter shares recovered on Friday after dropping in pre-market trading as the company swung to a second-quarter net loss of more than $270 million compared with a net income of nearly $65.6m in the same period a year earlier.

The company’s shares, which have dropped more than 7 per cent since the start of the year, were trading at $39.2 at 7.05pm UAE time after dropping to $38.2 at 4.10pm.

The San Francisco-based microblogging site’s total revenue dropped roughly 1 per cent year-on-year to about $1.18bn in the three months to June 30.

“Twitter believes that Mr Musk’s purported termination is invalid and wrongful, and the merger agreement remains in effect

The drop in sales reflected “advertising industry headwinds associated with the macro-environment as well as uncertainty related to the pending acquisition of Twitter by an affiliate of Elon Musk", Twitter said in a statement.

Given the pending acquisition of the company by the billionaire businessman, Twitter said it will not host an earnings conference call, issue a shareholder letter, or provide financial guidance for the current quarter.

Mr Musk agreed to acquire Twitter in a $44bn deal in April, pledging to pay $54.20 a share. Upon completion of the deal, the plan is for Twitter to be converted into a privately held company.

However, the deal is facing headwinds. On July 8, Mr Musk filed paperwork to terminate the transaction, claiming Twitter did not address enquiries on its “spam” or bot accounts, or provide him with relevant business information.

On July 12, Twitter legally challenged Mr Musk for breaching the agreement.

Last week, Twitter's stock declined from more than $50 a share when the deal was announced in April to as low as $32.55.

The Tesla and SpaceX founder requested that the proceedings begin in February 2023, while the social network company argued for an expedited trial given a continuing public dispute.

A Delaware judge has scheduled an October date for the trial.

“Twitter believes that Mr Musk’s purported termination is invalid and wrongful, and the merger agreement remains in effect,” the company said on Friday.

In the second quarter, Twitter reported a 16.6 per cent increase in monetisable daily active users to 237.8 million.

The increase was driven by “ongoing product improvements and global conversation around current events”, the company said.

Monetisable daily active users were up 14.7 per cent yearly to 41.5 million in the US at the end of the second quarter, while they rose 17 per cent to 196.3 million internationally.

Advertising sales contributed more than 92 per cent to the company’s total revenue, growing 2 per cent on an annual basis to nearly $1.1bn in the quarter.

Meanwhile, revenue from subscriptions and other streams dropped 27 per cent yearly to $101m.

The company’s second-quarter capital expenditures totalled $154m, an annual drop of more than 44 per cent.

Total costs and expenses rose more than 30 per cent to more than $1.5bn in the quarter.

It reported an operating loss of $344m, compared to an operating income of $30m in the same period last year.

“Costs related to the pending acquisition of Twitter were approximately $33m in the second quarter … [and] severance-related costs were approximately $19m,” Twitter said.

Net cash provided by operating activities in the three-month period stood at $30m, compared with $382m in the same period last year.

Twitter spent more than $454.9m on research and development, nearly 38.7 per cent of its total sales in the second quarter. It was 51.7 per cent more than the R&D expenditure of the same period in 2022.

Updated: July 22, 2022, 4:49 PM