It is pretty rare for a company’s stock to crash after it delivers around a 70% rise in quarterly profits from one year to the next, but that is exactly what happened with American social media giant Twitter. However, the company’s revenue forecasts for the first quarter of 2019 did not meet with estimates made by analysts, and it is believed to be the reason behind the 10% decline in Twitter’s share price.
Twitter announced that it expects the first quarter revenues for 2019 to be in the range between $715 million and $775 million. Those figures were below analysts’ estimates. The reason behind the revenue figure is also tied to the fact that the social media company has pointed out that in 2019; its costs are going to rise by around 20%.
The projected rise in costs and the revenue figure triggered the sell-off, but at the same time, its robust numbers are hard to ignore. In the same quarter last year, Twitter recorded a profit of $91 million, but in the fourth quarter in 2018, it recorded a handsome profit of $255 million. That is a rise of around 70%. In addition to that, the advertising income grew as well.
The projected rise in costs is tied to the fact that Twitter is looking at measures to scrutinize the content on its platform more closely. Issues of fake news, privacy, harassment and hate speech have dogged the social media industry for much of the past year. It is believed that these measures will eventually make Twitter a better place for users. Although the number of users shrunk from 330 million to 321 million, the company’s video advertising revenue grew and was pegged at $909 million. The Chief Executive Officer of Twitter, Jack Dorsey said, “2018 is proof that our long-term strategy is working. We enter this year confident that we will continue to deliver strong performance by focusing on making Twitter a healthier and more conversational service. ”
Many analysts however struck a note of caution despite the bullish pronouncements from Jack Dorsey. Investing.com analysts said, “Total user numbers are down, but we’ve known for a while now that Twitter has a fake-users problem and is trying to deal with it, so that shouldn’t come as a surprise to anyone. Higher operating expenses, on the other hand, are a bigger problem, as I anticipate Twitter’s margins and profits to shrink considerably in 2019.”