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Twitter Shares Fall The Most in Five Years After Q3 User Growth Disappoints

Twitter shares fell the most in five years Friday after the micro-blogging website posted weaker-than-expected growth figures for its daily active users.

Twitter Inc.  (TWTR)  shares fell the most in at least five years Friday after the micro-blogging website posted better-than-expected third quarter earnings but noted that its own measure of user growth missed Wall Street forecasts.

Twitter said non-GAAP earnings for the three months ending in September came in at 19 cents per share, up 2 cents from the same period last year and 13 cents ahead of the Street consensus forecast. Group advertising revenues, Twitter said, rose 15% to $808 million, while total revenues were up 14% at $936.2 million, with both figures topping analysts' estimates.

Twitter said that its metric of 'monetizable daily active users' (mDAU) rose 29% from last year to 187 million, with U.S. figures rising 20% to 36 million and international totals rising 32%  to 152 million. The overall Refinitiv forecast for mDAU was 195.2 million.

"As we look ahead to Q4, there's a lot to navigate and much of it is unique to 2020. On the positive side, October looks a lot like September, with events and product launches coming back," CFO Ned Segal told investors on a conference call late Thursday. "And we're benefiting from all of the hard work we've done to make Twitter a must buy for advertisers looking to launch new products and services and to connect with what's happening."

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"As we approach the U.S. election, however, it's hard to predict how advertiser behavior could play out. In Q2, many brands slowed or paused spend in reaction to U.S. civil unrest, only to increase spend relatively quickly thereafter in an effort to catch up," he added. "As we look ahead the periods surrounding the U.S. election is somewhat uncertain, but we have no reason to believe that September's revenue trends can't continue or even improve outside of the election-related window."

Twitter shares were marked 20.75% lower lower in late morning trading Friday following last night's earnings release to change hands at $41.56 each. The stock's intra-day low of $41.48 marks the biggest single-day decline in at least five years.  

"We felt caution (heading into the earnings report) was warranted due to recent outperformance, but there were also two negative surprises: mDAU growth slowed sooner than expected and MAP 2.0 was delayed until Apple gives more post IDFA (The Identifier for Advertisers) guidance," said BMO Capital Markets analyst Daniel Salmon, who carries a market perform rating with a $45 price target for the stock. 

"mDAU growth was destined to slow, so that’s less concerning to us and we remain impressed with continued user product improvement," he added. "But with the direct response roadmap halted, the Bull case screeches to a halt for the time being and we remain comfortable on the sidelines until greater visibility can be gained."