Twitter reports a huge loss in its first earnings to report following Elon Musk’s “termination” of the takeover deal.
An enormous amount of uncertainty surrounds the company’s future as it begins a potentially protracted legal battle with the richest person in the world, which contributed to the social media giant Twitter posting a worse-than-expected loss in its first earnings report following Elon Musk’s decision to back out of a deal to buy the company.
Since Musk bought a 9% interest in Twitter in April, announced an offer to buy the company at a huge premium a few weeks later, and then said he was “terminating” the deal earlier this month, the Twitter stock has been on a wild ride. As the transaction gained momentum, shares shot up by as much as 60%, but they soon began to plummet as Musk expressed worries about spam and fraudulent accounts on the site. Twitter’s board had previously approved the acquisition, but Musk withdrew on July 8, causing the Twitter stock to fall by close to 40% from its highs in April. San Francisco-based Twitter reported revenue of $1.2 billion in the second quarter, which was down 1% from the same period last year and below average analyst expectations of $1.3 billion. In addition, the company reported a loss of $270 million, or 35 cents per share, which was worse than expected. In the same period last year, analysts had predicted a loss of 7 cents per share and a profit of $66 million. Twitter attributed the underwhelming result to headwinds in the advertising sector brought on by broader economic worries and uncertainty around Musk’s plan to acquire Twitter and take it private in its earnings announcement. In the second quarter, Twitter said it spent around $33 million on the acquisition and $19 million on layoff-related expenses, some of which affected about a third of the company’s recruiting team. Within minutes of the announcement, Twitter stock futures fell 2% to around $38.50; shares have declined by more than 40% over the previous year, while the S&P 500 has lost roughly 16% of its value. On July 12, Twitter’s board filed a lawsuit against Musk for pulling out of the contract, pleading with a Delaware judge to compel the billionaire to uphold the terms of the accord. According to tweets from Friday, the trial is expected to take place in October. In a note to clients, Wedbush analyst Daniel Ives referred to Musk’s choice as “a catastrophe scenario for Twitter” and forecast a protracted court battle on Twitter’s behalf to either force the purchase through or force Musk to pay a $1 billion termination fee $ 30 billion is the market worth of Twitter as of Friday, which is around 22% less than Musk’s suggested acquisition offer.
For several months, Musk has been displeased with Twitter for understating the number of bots that are a part of its user base. The company has refuted that assertion, asserting that fewer than 5% of users are bots. Executives have reiterated their estimates numerous times, most recently on Thursday during a press briefing. Musk further asserted that Twitter had not conducted its regular business as usual. The San Francisco-based business implemented a hiring freeze, let go of key executives, and had other significant departures. A clause in Musk’s agreement with Twitter stated that, under certain conditions, the party breaching the contract would be required to pay a termination fee of US$1 billion. Legal experts have disagreed on whether the dispute over spam bots is sufficient for Musk to withdraw from the agreement. Musk, though, might not be allowed to leave his position by only paying the termination fee. According to the initial filing, the merger agreement or contract contains a particular performance clause that enables Twitter to compel Musk to complete the transaction. Thus, should the transaction end up in court, Twitter might instead obtain an order compelling Musk to finish the merger than financial compensation for any infractions of it. On June 6, Twitter reiterated its commitment to hold Musk to the conditions of his planned acquisition, indicating even then that the firm believed he might be attempting to derail the deal.