Twitter next to be spanked by Wall Street; company loses 18% in valuation on Friday (UPDATE)
The day after Facebook dropped 18% removing close to $120 billion from its valuation, Wall Street turned to Twitter. The latter's shares declined over 18% on Friday afternoon, and once again the culprit was future earnings expectations. After the market closed on Thursday, the company reported second quarter earnings of 17 cents a share, matching Wall Street estimates. Revenue, at $711 million, beat by $15 million the number expected by analysts. Still, it was not enough to stave off disaster.
The number of monthly active users on Twitter during the second quarter was 335 million, falling 3.5 million shy of forecasts. It also was a drop of 1 million users from the first quarter. Twitter expects that figure to decline once again during the current three month period that expires at the end of September. Twitter now expects to report EBITDA (earnings before certain items) for 2018 to be in the range of $215-$235 million, which is a decline from the forecast made last quarter. In addition, the company announced an increase in capital expenditures for the year, to a range of $450 million to $500 million from the $375 million to $450 million range previously predicted. The combination of higher spending and lower EBITDA is not the usual recipe for a rising valuation.
UPDATE: At the close, Twitter dropped $8.38 or 20.5% to $34.12. The company lost $6.65 billion of its value and is now worth $25.67 billion.
Twitter recently removed 70 million accounts that were considered fake. But most of them had been on Twitter for less than 30 days, which means that they were never counted as monthly active users in the first place. Thus, their removal had nothing to do with today's steep decline.
Now that two Wall Street darlings have been taken to the back and shot, Wall Street is looking around to see who is next. And here is a friendly reminder. After next Tuesday's close, Apple will release its fiscal Q3 numbers. With traders in a less than forgiving mood, any report that could be interpreted as bearish is likely to result in a huge decline in valuation for the company involved.