Twitter Inc.’s (TWTR:US) slowing user growth pushed the stock to the lowest since last year’s market debut.
The company said yesterday that membership in the first quarter reached 255 million, with year-over-year growth decelerating to 25 percent from 30 percent in the previous period. The stock plunged as much as 13 percent in early trading even as sales more than doubled to $250 million, topping analysts’ estimates.
Twitter’s efforts to move past microblogging and into image and video sharing have failed to spur a surge in users in a market where Snapchat Inc. and Facebook Inc.’s (FB:US) Instagram application are gaining popularity. The company needs more consumers adopting the service and staying on longer as it vies for marketing dollars in Web and mobile advertising.
Video: Twitter's User Growth Slows as Mobile Rivals Gain
“Wall Street is laser focused on that user number,” said Thomas Forte, an analyst at Telsey Advisory Group in New York. “For Twitter to maximize its value as an investment they need to get in front of as many people as possible and do a good job of monetizing that audience.”
Twitter’s stock plunge magnifies the recent drop of many Internet stocks, with Linkedin Corp. and Google Inc. also down today and for the year. Investors are questioning whether the Web companies, many of which are richly valued, can keep up revenue expansion. The Nasdaq Internet Index is off 17 percent from a March peak, hovering close to the threshold for a bear market.
Twitter fell 8.6 percent to $38.97 at the close in New York, the lowest since it started trading in November. That values the company at 18 times projected revenue for this year and still makes it more expensive than Facebook’s price-to-sales ratio of 17, and LinkedIn’s 16.
“The appetite for growth stocks has just completely unraveled in the last few weeks, and Twitter is at the top of that list,” said Rob Sanderson, an analyst at MKM Partners LLC.
Chief Financial Officer Mike Gupta said on a conference call with analysts that the San Francisco-based company has no plans to pursue a secondary share sale.
Twitter’s net loss widened to $132.4 million, or 23 cents a share, from $27 million, or 21 cents, a year earlier. Excluding some items, the company broke even, beating the 3-cent loss predicted by analysts.
Even as user growth slowed, people viewed their Twitter timelines more often, with 157 billion views, up 15 percent from a year earlier.
Chief Executive Officer Dick Costolo has said he is tweaking the company’s product to draw in and retain users. Twitter has tried altering its design to display images and videos more prominently. This year, the company is working to simplify private messaging, particularly for moving between private and public conversations, Costolo said.
“The distribution and consumption of tweets around the world is already mainstream,” Costolo said yesterday in an interview. “Now, what we’re in the process of doing is working to increase the value of the logged-in experience.”
He said the company is seeing signs of accelerating user growth, especially in the U.S.
Twitter said this month that it hired Daniel Graf, who was a director in Google Inc.’s mapping unit, to be its new head of product, starting in June. Graf replaces Michael Sippey, who left the position in January. The company will focus on improving its main products, including the video-sharing application Vine, rather than relying on acquisitions to boost growth, Costolo said.
Twitter may introduce a product that makes it possible to easily switch to private conversations involving multiple people, Costolo said on Bloomberg Television today.
“There are frequently public conversations that you would like to grab hold of and take into whisper mode with a friend and say, ‘Hey, this thing has happened,’” Costolo said.
The company forecast second-quarter revenue of $270 million to $280 million. Analysts on average estimated $272 million, according to data compiled by Bloomberg. Revenue for the year will be $1.2 billion to $1.25 billion, Twitter said.
Twitter is competing with Facebook and Google in the market for mobile ad dollars. The company recently said it will offer ads that software developers can use to drive more downloads of their applications -- a product type that has helped Facebook boost mobile revenue. Using its ad network, acquired in last year’s purchase (TWTR:US) of MoPub, Twitter has said it can reach more than 1 billion phones.
Mobile advertising revenue accounted for 80 percent of total ad sales, Twitter said. Facebook said last week that 59 percent of ad revenue came from mobile, up from almost nothing at the time of its 2012 initial public offering.
Twitter’s share of the $31.5 billion mobile ad market is expected to rise to 2.7 percent this year from 2.4 percent in 2013, trailing Facebook’s 22 percent and Google’s 47 percent, according to EMarketer Inc.
The company has also been exploring commerce options on the site after hiring former Ticketmaster executive Nathan Hubbard. Shopping would have the same real-time feel as the rest of the Twitter experience, Costolo said.
“I think about our commerce opportunity as commerce in the moment,” he said.
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