Twitter (NYSE:TWTR) stock dipped 1% in early trading today after the social media company missed Wall Street’s earnings expectations. The company cited Tesla (NASDAQ:TSLA) CEO Elon Musk’s plan to acquire TWTR stock as partially to blame.
Twitter missed analysts’ forecasts on both top and bottom lines, which it linked to uncertainty surrounding the pending acquisition of the company. It said its second-quarter earnings were also negatively impacted by slower online advertising sales.
Year-to-date, TWTR stock is down more than 7% at about $39.50 per share.
What Happened With TWTR Stock
Twitter reported an earnings per share (EPS) loss of 8 cents for the April through June period, compared to a profit of 14 cents that had been anticipated by analysts, according to Refinitiv data. Revenue in the period came in at $1.18 billion versus $1.32 billion that was expected. Twitter said its daily active users totaled 237.8 million in Q2, which was slightly below the 238.08 million that Wall Street had penciled in.
Twitter and other social media companies that rely on advertising have been challenged by slower corporate spending on ads as the economy slows and they contend with rising interest rates. Yesterday, Snap (NYSE:SNAP) also reported disappointing second-quarter results due to a decline in advertising that sent its stock down more than 25% in after hours trading.
However, Twitter said its earnings were also impacted by its ongoing legal battle with Musk over his proposed acquisition of the company. The Tesla CEO backed out of the deal to acquire TWTR stock for $54.20 per share, and the matter is now headed to court. Twitter said costs related to the Musk acquisition amounted to $33 million during the second quarter.
Why It Matters
Twitter’s earnings show the toll of the drama surrounding whether Elon Musk will buy the company or not. This may work in its favor if it can successfully argue in court that Musk backing out of the acquisition has materially hurt Twitter’s finances.
Additionally, a separate class action lawsuit against Musk has already been brought by Twitter shareholders. They argue that the situation has hurt TWTR stock and their investment in the company.
Twitter’s latest earnings also show the social media company is being harmed by numerous macroeconomic headwinds right now, especially a slowdown in online advertising spending. Twitter’s results fall in line with those issued by Snap and indicate a rough road ahead for companies that are dependent on online ads.
With rising interest rates slowing the U.S. economy and possibly pushing it into a recession, the slowdown in corporate ad spending could accelerate in the coming months.
What’s Next for TWTR Stock
Twitter stock is taking a hit today following its Q2 print. While the numbers were bad, the uncertainty surrounding Elon Musk’s potential acquisition of the company and an ongoing slowdown in ad spending could weigh on the share price for many months to come. Investors should be careful with TWTR stock.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.