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Twitter posts surprise drop in revenue amid battle with Elon Musk

The social media platform blames economic headwinds and the Tesla billionaire’s efforts to walk away from their acquisition deal

(Gregory Bull/AP)

Twitter on Friday reported a surprise revenue decline and steep losses in the second quarter, citing the tough economic environment and its battles with Elon Musk.

The company said it brought in $1.18 billion in revenue ― a 1 percent year-over-year drop that falls short of Wall Street’s $1.32 billion expectation ― even as the number of daily active users swelled 16.6 percent to 237.8 million. It ran a net loss of $270 million.

In Friday’s earnings release, the company said its revenue decline reflected “advertising industry headwinds associated with the macroenvironment as well as uncertainty related to the pending acquisition of Twitter by an affiliate of Elon Musk.”

The company did not hold a customary conference call with analysts because of ongoing litigation related to the Musk deal. Its stock fell 1.6 percent at the market open before recovering. It had closed on Thursday at $39.52.

Musk, who is chief executive of Tesla and SpaceX, agreed to take over Twitter for $54.20 per share earlier this year. But in subsequent months, he feuded with the company’s executives, pressured the company over the number of fake users on its platform, and recently attempted to back out of the deal.

Twitter is now suing Musk to complete the acquisition. The company argues that Musk’s attempt to back out of the deal “is invalid and wrongful, and the merger agreement remains in effect.” The company’s request for an expedited trial was granted and a trial is scheduled for October 2022, according to Friday’s release.

The drawn out process appears to have taken a toll on Twitter. On Friday, the company reported $33 million in costs “related to the pending acquisition.”

Wedbush senior analyst Dan Ives said Twitter’s reported results are actually good news for the tech industry at large. While the 1 percent decline was unexpected, “it shows digital ad spending is not falling off a cliff like feared which is a positive for others in the space such as Facebook, Pinterest, and Google,” Ives said.

He added that investors are factoring in a positive result for Twitter in its court case with Musk. “We believe Twitter has a clear upper hand legally speaking as the Street is now factoring in at a minimum a major cash settlement from Musk ($5 billion-$10 billion range) or potentially Musk ultimately still buying Twitter,” Ives said in a note to investors.