Twitter’s earnings were nothing to write home about, unless you like to pass along news of a disaster. The company says it knows what it has to do, but with shares down 20% since market close yesterday, there are a lot of investors who don’t seem to believe them.
Even as Twitter trumpeted a 17% year-over-year growth in “monetizable daily active usage” (the amount of time users were using the system and could see ads), the money numbers missed analyst expectations. Revenue of $823.7 million may have been up 9% year over year, but average estimates were for $874 million. Average estimate for earnings per share was $0.20 while in reality diluted non-GAAP EPS was $0.05. (EPS under GAAP standard accounting was $0.01.)
In a client note, Mark Mahaney, managing director at RBC Capital Markets, calls the miss “rare” and writes that Twitter had surpassed the high end of guidance in 17 out of the last 21 quarters. But beyond saying that “everybody makes mistakes,” Mahaney points out that Twitter’s business model depends on big news-driven events that send people to the platform.
The trouble, Twitter said, came down to technology.
“They missed on revenue because they had issues targeting ads,” says Michael Pachter, managing director of equity research at Wedbush Securities. “Advertisers weren’t willing to pay as much per ad without seeing a return on their investment, and Twitter was unable to keep them satisfied, so they missed—badly—on the revenue line. User growth is fine, and ad frequency is fine, but without effective targeting, ad pricing may remain under pressure.”
As Oppenheimer explained in a client note published today, not only are there targeting issue, but also data privacy compliance ones that meant Twitter was inadvertently using some user data without permission.
As CFO Ned Segal explained during the earnings call: “And another one of the questions that we ask people before we put them into a timeline is if we can share their data with measurement partners. That setting also was not working as expected and we were passing on data, which we have not intended to. So, we stopped doing that and although we are working on remediation, there isn’t remediation yet in place, and so the effects of that will continue into Q4.”
But beyond the privacy issues, some analysts are highlighting the fact that some advertisers appear to either cooling on the platform or stalling spending. As Victor Anthony at Aegis Capital explained in a client note today, “numerous checks” they made with advertisers elicited such responses as “Twitter’s ad spend had stalled”; “not seeing YoY growth at Twitter”; “Clients are staying away due to the political-ness of Twitter”; “spend level is the same as in January, no growth”; “large deceleration in July and flat growth in August”; and “poor performance in 3Q”.
“The company assured us that they have [the technical issues] under control, but the share price tells you that investors remain skeptical,” Pachter says. “They will be in the penalty box till they prove this is a fluke.”
More must-read stories from Fortune:
—Maven, the company that slashed Sports Illustrated, has had its own share of financial woes
—Trump’s hosting G7 at Doral Resort raises questions about struggling property, Deutsche Bank loans
—What Warren Buffett’s move to increase his Bank of America stake says about the health of the economy
—How would you spend a universal basic income? We asked participants around the world—and their answers might surprise you
—Why JPMorgan Chase wants to give more former criminals a second chance
Don’t miss the daily Term Sheet, Fortune’s newsletter on deals and dealmakers.