Twitter misses on earnings, cites Elon Musk acquisition 'uncertainty' as quarterly revenue headwind

Twitter shares opened lower Friday after the social media giant reported second quarter revenue and user growth results that missed Wall Street expectations.

The social media platform posted a quarterly net loss of $270 million, or 35 cents per share, down from a profit of $65.6 million, or 8 cents per share, a year ago.

Total revenue came in at $1.18 billion compared to $1.19 billion in the prior year quarter. Advertising revenue increased 2% year over year to $1.08 billion, while subscription and other revenue fell 27% year over year to $101 million. 

Economists surveyed by Refinitiv were expecting an adjusted earnings profit of 14 cents per share and total revenue of $1.32 billion. 

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Twitter attributed its revenue results to "uncertainty" surrounding billionaire Elon Musk's pending $44 billion acquisition and "advertising industry headwinds associated with the macroenvironment." The company reported $33 million in costs during the quarter related to the acquisition. 

In response to the news that Musk's deal was being partially blamed, the billionaire tweeted "I'm rubber, they're glue."

Earlier this month, Musk announced he would be terminating the deal, claiming Twitter is "in material breach of multiple provisions" of the agreement and "appears to have made false and misleading representations" when it accepted Musk’s acquisition offer on April 25. Musk has disputed Twitter's internal estimates that spam and fake accounts make up less than 5% of its users. 

On Friday, Twitter reported a total of 237.8 million average monetizable daily active users, up 16.6% compared to the same period a year ago but below Wall Street expectations of 238.1 million users. Average daily active users in the U.S. jumped 14.7% year over year to 41.5 million, while international daily active users jumped 17% year over year to 196.3 million. 

In response to Musk and his team's accusations, Twitter called the "purported termination" of the deal "invalid and wrongful" and a "repudiation of their obligations under the agreement." Twitter is also suing Musk accusing him of refusing to "honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests."

A trial in the legal battle is slated for October. 

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… or potentially Musk ultimately still buying Twitter… if the Delaware court upholds this deal.

- Dan Ives, Wedbush analyst

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Twitter declined to provide financial guidance and said it would not host an earnings call due to Musk's pending acquisition. It added that stockholder approval is the only remaining approval or regulatory condition standing in the way of completing the merger. 

"The stock will continue to trade at fair value plus the odds of a deal or settlement with Musk as the court case in Delaware looms in October," Wedbush analyst Dan Ives wrote in a note to clients on Friday. "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 into the stock ($5 billion-$10 billion range) or potentially Musk ultimately still buying Twitter at the $54.20/$44 billion if the Delaware court upholds this deal."

As of the time of publication, Twitter shares are trading at around $39 apiece, well below Musk's original offer of $54.20 per share. The stock is down more than 7% year to date.