Twitter's sputtering user growth unnerves investors

SAN FRANCISCO Wed Feb 5, 2014 5:23pm EST

A sign displays the Twitter logo on the front of the New York Stock Exchange ahead of the company's IPO in New York, November 7, 2013. REUTERS/Lucas Jackson

A sign displays the Twitter logo on the front of the New York Stock Exchange ahead of the company's IPO in New York, November 7, 2013.

Credit: Reuters/Lucas Jackson

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SAN FRANCISCO (Reuters) - Twitter Inc reported its slowest pace of user growth during the fourth quarter, dimming hopes that the social media phenomenon can sustain its torrid pace of expansion and wiping out more than 10 percent of its value on Wednesday.

The San Francisco company posted better-than-expected quarterly 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 the months since, as shares raced to more than $66 ahead of Wednesday's results, despite an absence of news.

Twitter's valuation was predicated in part on the belief it could expand its appeal and eventually grow to a scale close to Facebook's, 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 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 $58.50, down about 11 percent from a close of $65.97 on the New York Stock Exchange.

At about 30 times projected 2014 sales, Twitter was more than twice as expensive as Facebook or LinkedIn, based on its Wednesday closing price.

BLOATED VALUATION

Twitter's user numbers grew at 10 percent, 7 percent, and 6 percent during the first three quarters of the year, respectively.

Timeline views dropped sharply from 159 billion to 148 billion in the quarter, signaling that users were refreshing their Twitter accounts less often.

But 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 one thousand timeline views, a significant jump of 76 percent from a year prior.

Twitter, which lets users send 140-character messages through its mobile app or online, 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.

Twitter said it was targeting revenue of $230 million to $240 million in the first quarter.

(Reporting by Gerry Shih; Editing by Nick Zieminski)

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Comments (7)
AlkalineState wrote:
I don’t know any people who regularly use twitter. It’s like a groupon account. Just because you set up an account one time (3 years ago) and it gets filled up with junk mail and posts…. that doesn’t mean you ever check it. This is a failed medium, and advertisers are starting to realize the enrollment numbers are meaningless.

Feb 05, 2014 5:09pm EST  --  Report as abuse
WeAreLosingIt wrote:
Dot-bomb part 2 well underway…

Feb 05, 2014 5:11pm EST  --  Report as abuse
bertanderson wrote:
I don’t now how analysts can set such low expectations for revenue and earnings with companies such as Twitter with P/E ratios in the nose bleeds. Don’t they know when the bears come out, these companies get hammered and hammered again. If the companies in your portfolio are not making money or have a P/E above 12, I would be concerned in this volatile market.

Feb 05, 2014 5:49pm EST  --  Report as abuse
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