Snap! Elon Musk has another Twitter excuse

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3 minute read

A 3D printed Snapchat logo is seen through broken glass in this illustration taken November 7, 2017. REUTERS/Dado Ruvic/Illustration

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NEW YORK, May 24 (Reuters Breakingviews) - Snap (SNAP.N) could be Twitter’s (TWTR.N) raven. The disappearing-message app abruptly slashed its second-quarter forecasts, sending its shares spiraling some 40%. That’s an ominous sign for Twitter. Elon Musk has an additional reason to bail on buying the social media network.

Snap’s admission late on Monday that the economy was deteriorating faster than anticipated came as a shock. Last month, the company run by Evan Spiegel was expecting its revenue to increase between 20% and 25% year-over-year and adjusted EBITDA to break even at worst. Snap now expects its top line and profit to undershoot its guidance range.

The warning pulled down other firms dependent on digital advertising. Facebook-owner Meta Platforms (FB.O) shed $50 billion of market value; Google’s parent, Alphabet (GOOGL.O), lost nearly $60 billion. But the two technology titans are on firmer footing, with a wider variety of customers and less exposure to a few big brands. For instance, Facebook and Instagram attract advertising revenue from small businesses while Google hoovers up search ads.

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Twitter, however, is a similar breed to Snap, feeding from the same revenue stream of brand advertisers. More problematically, Snap is growing faster: During the first quarter, its revenue increased 38% year-over-year to $1 billion, while daily active users rose 18% compared to the year-ago quarter to 332 million. By contrast, Twitter’s top line is growing at half Snap’s pace. And it had to recast its total active user numbers because of overcounting. Twitter boss Parag Agrawal is not giving an outlook pending Musk’s $44 billion acquisition.

That deal is already on shaky ground. The Tesla chief executive is stalling his offer while he waits for Agrawal to cough up additional data on fake accounts. Shares of Twitter, which fell 4% on Tuesday to around $36, are well below Musk’s $54.20 offer, implying approximately a 30% chance of the deal closing, according to a Breakingviews calculation. Musk could always walk away too. Snap may have handed him another excuse.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

- Snap on May 23 cut its second-quarter revenue and adjusted EBITDA forecasts to below its guidance range, saying “the macroeconomic environment had deteriorated further and faster than anticipated.”

- On April 21, the company said second-quarter revenue would increase between 20% and 25% year-over-year and adjusted EBITDA would be between breakeven and $50 million.

- Snap shares fell nearly 40% in morning trade on May 24. Twitter will hold its annual meeting of stockholders on May 25.

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Editing by Ed Cropley, Pranav Kiran and Sharon Lam

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