Social Media

Twitter Is Having Trouble Adding Users, but Learning to Make Money From Them


Expectations are everything, and Twitter (TWTR) has the rotten luck of having its expectations set by Facebook (FB), its much-larger cousin atop the social media world. Twitter reported its first-ever quarterly earnings as a company on Wednesday, and by some measures they were quite good. The company brought in $243 million in revenue in the fourth quarter of last year, up 116 percent from the same period a year earlier, beating analyst expectations. If you omit a one-time payment of stock to its employees, the company reported income of $9.7 million. Still, its shares fell precipitously in after-hours trading, and were down more than 11 percent within an hour of the report.

The major reason seems to be concern about the rate at which Twitter is adding users—more slowly than investors would like. The company reported that it had 241 million monthly average users at yearend, coming in below what many analysts had expected. This was the fourth consecutive quarter the company’s user base grew more slowly than it had the quarter before. Also troubling is that the number of timeline views, a measure of how engaged people are with the service, declined this quarter, in the U.S. and abroad. Twitter said the drop was a result of changes in its product, and that timeline views were only one measure of engagement.

In a conference call, investors expressed concerns about these trends repeatedly. The company acknowledged the obvious: that it hasn’t been as easy to attract users as it had been in the past. “Up until last year, our growth was viral and organic,” Dick Costolo, the company’s chief executive, told investors. “Growth was something that happened to us.” Now the company has to work for users, but Costolo insists it’s going to figure things out.

To draw an ambiguously useful but completely unavoidable comparison, Facebook added 170 million users in 2013; Twitter added 56 million. It’s not completely clear why we evaluate Twitter’s performance based on Facebook’s recent success, but apparently we must. Fair or not, “Facebook seemed to have set some kind of gold standard,” says Brian Blau, an analyst at Gartner.

What Twitter did improve on was making money from people using its site. The company’s ad revenue per timeline view, a way to measure how effectively it makes money from engagement, was up 76 percent from a year earlier. Twitter had a “modest increase” in the number of ads its users actually saw in the fourth quarter.

So if Twitter is having trouble adding new users, but is getting better at making money off those it does attract, is that a good or bad thing on balance? Either way, it doesn’t seem that buying Twitter stock has been an exercise in rational thinking. When the market closed Wednesday, its share price was about 2.5 times what it was when the company began trading in November, when many said idle excitement was the main force driving up the price.

Investors have been looking for a reason to dump on Twitter. Of 32 analysts polled by Bloomberg before Wednesday’s earnings report, 12 had a sell rating on the stock, while only 7 said it was a good buy. (The remaining 13 said they’d hold on to it.)

This can all seem very dramatic, but the blips and bumps in the stock price are likely to be forgotten in the near future. As my colleague Eric Chemi pointed out this morning, the performance of a stock in its first several months is useless in predicting how it will do beyond that.

Brustein is a writer for Businessweek.com in New York.

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Companies Mentioned

  • TWTR
    (Twitter Inc)
    • $44.99 USD
    • -0.07
    • -0.16%
  • FB
    (Facebook Inc)
    • $74.73 USD
    • -0.08
    • -0.11%
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