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 The San Francisco company posted better-than-expected fourth-quarter
revenue of $243 million in its first results as a public company.
But investors focused on the anemic user growth, as well as a severe
decline in timeline views, a measure of user engagement.
Twitter, which held a highly anticipated initial public offering in
November at $26 a share, has divided investor opinion in recent
months, as shares raced to more than $66 ahead of Wednesday's
results despite an absence of news.
Twitter's valuation has been predicated in part on the belief it
could expand its mainstream appeal and eventually become as
ubiquitous as Facebook Inc, which has five times as many users. Some
analysts warned that its valuation looked increasingly bloated.
User growth, a closely watched metric, in fact sputtered. Twitter
averaged 241 million monthly users in the December quarter, up just
3.8 percent from the previous three months — the lowest rate of
quarter-on-quarter growth since Twitter began disclosing user
figures.
"What this report will do is it will question how mainstream is
Twitter as a platform," said Arvind Bhatia, an analyst at Sterne,
Agee & Leach. "Both in the U.S. and internationally, the monthly
active user base did not grow as fast as people thought, and that
has an impact on the number of timeline views."
Shares fell sharply after hours on Wednesday to $54, down about 18
percent from a close of $65.97 on the New York Stock Exchange.
The tumble came as a rude jolt for investors who had bid up Twitter
shares to about 30 times projected 2014 sales, based on its
Wednesday closing price — or more than twice as expensive as
Facebook or LinkedIn Corp.
QUESTIONS
Twitter's user numbers grew at 10 percent, 7 percent, and 6 percent
during the first three quarters of the year, respectively, before
coming in at 3.8 percent for the final period.
Perhaps most surprisingly, timeline views dropped sharply from 159
billion to 148 billion in the quarter, signaling that users were
refreshing their Twitter accounts less often.
Dick Costolo, the Twitter chief executive officer roundly celebrated
just three months ago on Wall Street for pulling off a glitch-free
IPO, found himself on Wednesday facing repeated questions from
analysts about when Twitter's user growth might reaccelerate.
Twitter made a number of changes to its layout during the recent
quarter to help new users make sense of Twitter and stick with it,
he said. For instance, Twitter now shows multimedia directly inside
a tweet card and chains together conversation threads, which have
boosted user engagement.
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Costolo also talked up other initiatives such as improving the
onboarding process for newcomers to Twitter's mobile app, saying he
had "every confidence" that the slope of its user growth trajectory
will change in 2014 once those changes take effect.
But, he added, "what that slope will look like or when it will occur
is not something I can guess at."
EXPECTATIONS
In a rare move for fast-growing Internet companies, Twitter offered
forward-looking guidance, saying it was targeting revenue of $230
million to $240 million in the first quarter.
Even as Twitter's user numbers appeared to plateau, one bright spot
was that the efficacy of its advertising business model — which
places ads inside users' timelines every time they refresh — appeared to steadily improve. The company said it made $1.49 per
1,000 timeline views, a significant jump of 76 percent from a year
prior.
In the past year, Twitter has invested heavily in improving its
targeting capabilities to show ads that elicit more feedback from
users; advertisers have proven willing to pay more for
better-targeted ads.
Twitter had a net loss of $511.5 million in the fourth quarter,
widening significantly from a year earlier as it shelled out on its
sales force, research and marketing.
On a non-GAAP basis that excluded items, it made a profit of 2 cents
per share, versus roughly break-even a year ago, beating
expectations for a slight loss.
"The actual numbers are strong in terms of fundamentals," said Ben
Schachter, an analyst at Macquarie. "People had really run this
thing up expecting an absolute blow-out. Guidance looks strong, just
not as strong as some people had hoped."
(Reporting by Gerry Shih and Alexei
Oreskovic; editing by Nick Zieminski and Lisa Shumaker)
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