Twitter Inc on Wednesday reported its slowest pace of user growth in recent company history, dimming hopes that the social media phenomenon can sustain its torrid pace of expansion and wiping out nearly a fifth of the company’s value in after-hours trading.
The San Francisco-based company posted better-than-expected fourth-quarter revenue of US$243 million in its first results as a public company. However, 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 US$26 a share, has divided investor opinion in recent months, as shares raced to more than US$66 ahead of Wednesday’s results.
User growth, a closely watched metric, 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,” Sterne, Agee & Leach analyst Arvind Bhatia said. “In the US and internationally, the monthly active user base did not grow as fast as people thought.”
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.
Twitter chief executive officer Dick Costolo, 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.
In a rare move for fast-growing Internet companies, Twitter offered forward-looking guidance, saying it was targeting revenue of US$230 million to US$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 US$1.49 per 1,000 timeline views, a significant jump of 76 percent from a year earlier.
Twitter had a net loss of US$511.5 million in the fourth quarter, widening significantly from a year earlier as it shelled out on its sales force, research and marketing.
“The actual numbers are strong in terms of fundamentals,” Macquarie analyst Ben Schachter said. “People had really run this thing up expecting an absolute blow-out. Guidance looks strong, just not as strong as some people had hoped.”