Twitter blames revenue slide on Elon Musk takeover uncertainty

Twitter has blamed a drop in revenue on uncertainty around Elon Musk’s chaotic takeover bid for the business and a weak advertising market.

The social media company said revenue for the three months to 30 June was $1.18bn (£986m), a decline of 1% on the same period last year, which it said reflected “advertising industry headwinds associated with the macroenvironment” as well as “uncertainty related to the pending acquisition of Twitter” by the Tesla chief executive.

The company also revealed that costs related to the bid, which Musk now wants to abandon, ran to $33m in the quarter.

Higher costs also helped push Twitter into a net loss for the quarter compared with net income – a US measure of profit – of $66m for the same period last year.

Advertising accounts for 90% of Twitter’s revenue, with just over half of the company’s advertising income coming from the US. On Thursday the owner of Snapchat warned of “substantially slowed” ad growth.

Monetisable daily active users on Twitter, a metric closely watched by investors that measures users who see advertising on the platform, grew 16% to 237.8 million, but missed analyst expectations of 238.7 million.

“Twitter is now in the unenviable position of convincing advertisers that its ad business is solid regardless of how its court battle with Musk ends, and its Q2 earnings show that the platform has its work cut it out for it to do that,” said Jasmine Esberg, an analyst at the research firm Insider Intelligence.

Musk’s $44bn bid overshadowed the results, with Twitter deciding not to put forward executives for a results conference call due to the takeover situation.

The world’s richest person has pulled out of the deal, citing uncertainty over the number of spam or fake accounts on the platform, but Twitter has filed a lawsuit demanding Musk goes ahead with the transaction as per a legal agreement he signed in April.

The trial is scheduled to take place in October and could result in Musk being ordered by a judge to buy the business for the agreed price of $54.20 per share. Twitter shares, whose performance has been more closely linked to the takeover situation rather than the company’s finances, were broadly flat in early trading on Friday at $39.42.

Related: Twitter wins first legal battle with Elon Musk as trial to go ahead in October

In the results Twitter repeated its estimate that less than 5% of its users are false or spam accounts – a number Musk disputes but is struggling to disprove.

Drew Pascarella, a senior lecturer on finance at Cornell University, said the negative cashflow of more than $123m shown in the results did not bode well for Twitter if it is ultimately bought by Musk. The Tesla chief’s financing for the takeover includes $13bn of bank debt that will sit on Twitter’s balance sheet.

“Twitter did not generate positive cashflow this quarter,” said Pascarella. “In fact, Twitter burned almost $125m this quarter, versus generating $103m a year ago. Why does this matter? Because if the Musk deal does go through, Twitter will need to generate substantial cash to service, and eventually pay off, the massive amount of debt Elon plans to saddle it with.”