Shares in Twitter dropped 11 per cent to their lowest since the messaging platform’s initial public offering when it failed to reverse a trend of slow user growth, shaking investor confidence that it could ever grow to the size of Facebook.
The home of the 140-character message suffered in after-hours trading when it reported first-quarter results which beat analyst expectations but disappointed on user numbers, which edged up only to 255m from 241m last quarter. Twitter reported revenue of $250m, higher than the average analyst estimate of $241.5m. The net loss, on a GAAP basis, was $132,000.
Dick Costolo, Twitter’s chief executive, said it was a “very strong first quarter”.
“Revenue growth accelerated on a year-over-year basis fuelled by increased engagement and user growth.”
He dismissed the share price reaction, saying much of it was connected to the recent sell-off in technology stocks. “There are some more secular trends,” he said in an interview with the Financial Times. “A number of companies have had some fairly exceptional earnings and their stock has dropped so I’m not sure what might be happening.”
Despite the stock’s precipitous fall, he said he thought Wall Street understood Twitter’s message and plans for the year.
Mr Costolo stressed that Twitter’s “reach and impact” stretched beyond Twitter and investors should look instead at the “larger platform strategy”.
Mr Costolo said that Twitter’s mobile advertising exchange, using the MoPub acquisition, was “very different” from what Facebook is expected to launch tomorrow. “Our advertising exchange is a platform meaning we can plug in any number of sources of supply and demand which is different from the ad network that Facebook may announce tomorrow or any other network,” he said. Facebook’s network could possibly be plugged into Twitter’s exchange.
“With the integration of MoPub, we now reach more than 1bn iOS and Android users each month, making us one of the largest in-app mobile ad exchanges in the world and the only one at scale to offer native in-app advertising,” he said.
Mr Costolo also said Twitter would improve its private messaging function, which will help it compete with chat apps, particularly in regions where private conversation is “culturally looked upon as more valuable”.
Twitter issued forecasts for the next quarter and full year which were in line with analyst expectations. It predicted revenue from $270m to $280m in the second quarter, with adjusted earnings before interest, tax, depreciation and amortisation from $25m to $30m. For the full year, the company forecast $1.2bn to $1.25bn in revenues with adjusted ebitda of $180m to $205m.
Twitter shares were hit hard in the recent sell-off in high-growth tech stocks, falling almost 40 per cent in the past three months. The stock suffered in January after its first-ever earnings call when investors were unconvinced it had a plan that would significantly grow its user base.
On Tuesday, the company said average monthly active users increased 25 per cent year over year but only 6 per cent quarter on quarter. This was a slight increase from the 4 per cent quarter-on-quarter rate in the fourth quarter of 2013 but not dramatic enough to please investors. Mobile users made up 78 per cent of the total.
The San Francisco-based company has been busy tweaking the platform to make it easier to understand, even taking inspiration from rival Facebook. It has been focusing especially on changing the joining up process so people can get started more quickly.
However, the company, which went public in November last year, has had some early success in generating revenue from the platform. By selling promoted tweets, native advertising that sits in the feed, and focusing on tie-ups with TV advertising and live events, it has convinced some marketers that it is a medium worth paying for – even if it does not have the scale of Facebook, which enjoys 1.2bn users.
Mr Costolo responded to a story in the Financial Times, where NBCUniversal’s head of research said that social media was “not a game changer” in influencing television viewing. He said there was plenty of data to show a “two-way complementary relationship between Twitter and TV”.
Twitter is also experimenting with other funding models, launching a mobile advertising network which deploys Twitter data to sell ads on other apps. Adam Bain, Twitter’s head of revenue, says it could learn from Asian social media companies which convince users to pay for services rather than rely on advertising.