The machines are taking over Wall Street … and apparently they have it out for Twitter Inc (NYSE:TWTR).
Data mining firm Selerity put out a tweet during Tuesday’s late afternoon trading that provided earnings results for Twitter — results that weren’t supposed to be released until after the bell.
TWTR stock responded by plunging more than 6% before trading was halted, and between when it resumed and the end of the trading day, Twitter shares finished off more than 18% — and mayhem erupted at the New York Stock Exchange trading booth.
Twitter manged to post adjusted earnings of 7 cents vs. a consensus of 4 cents per share. So what had TWTR stock holders so rushed to find the exits?
The big culprit was revenue — while sales did spike 74%, the final number was $435.9 million, which fell well below Wall Street estimates of $456.8 million.
Guidance also was a disappointment, with Twitter forecasting Q2 revenues of $470 million to $485 million in the second quarter, also far below the consensus estimate of $538 million.
Adding to the pain was user growth, which merely came in line at 18% growth to 302 million average monthly active users. That’s a particularly prickly subject, considering TWTR has spent the past few months rolling out a number of new features including native video capturing, editing and sharing; recaps of tweets for returning users; and better direct messaging.
Twitter even launched a new app, called Periscope, which allows for real-time video streaming.
Ironically, such things may just be adding clutter and complexity, ruining the simplicity many loved about Twitter.
We’re also finding out that Twitter’s platform might not be the ideal social platform for advertising — at least compared to Facebook Inc (NASDAQ:FB). In the earnings release, CEO Dick Costolo mentioned lack of traction with “direct response products.” Perhaps this is why Twitter has entered an agreement to use Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) service DoubleClick.
So, how will TWTR stock look to new money come Wednesday morning?
Despite receiving a swift 18% haircut Tuesday afternoon, Twitter’s valuation isn’t exactly appealing. Without a positive trailing 12-month earnings number to rest on, we’d next look at Twitter’s price-to-sales ratio, which at 23 still trumps Facebook at 17 and LinkedIn Corp (NYSE:LNKD) at 15. Meanwhile, even based on 2016 earnings estimates of 81 cents per share, TWTR stock is trading at a lofty forward P/E of 52.
None of that is palatable when you consider that Dick Costolo’s credibility has once again come into question. There was no warning, and clearly Wall Street could have been guided better.
If nothing else, the Twitter earnings miss is an indication that management doesn’t seem to have much clarity in its business right now.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.