Twitter not winning over advertisers

Twitter Inc. may have hit a wall with advertisers, who appear unwilling to spend as much money with the socialmedia giant as expected.

That’s one reason investors reacted so negatively to Twitter’s disappointing first-quarter results, which included a US$436-million revenue figure that fell well short of analysts’ estimates — missing guidance for the first time and showing material deceleration. Meanwhile, ad revenue was five cents below a nalysts’ average forecast.

The stock fell more than 20 per cent on Tuesday after the company’s results were leaked before market close.

Mark Mahaney at RBC Capital Markets said Twitter’s poor performance raises the question of how much visibility into consumer and advertiser demand Twitter really has for its offerings.

“Channel checks and our extensive survey work don’t provide convincing evidence that a substantial number of advertisers will commit substantial ad dollars to Twitter,” the analyst said in a research note. “The possible ‘ ROI Wall’ increases our concern that Twitter’s lack of real-time commercial intent (à la Google) or detailed, authenticated profiles (à la Facebook) will at some point materially limit Twitters’s ad growth potential.”

Mahaney cut his price target on Twitter shares to US$47 from US$54, while trimming his 2015 revenue outlook by three per cent to US$2.25 billion and his EBITDA forecast by seven per cent to US$529 million.

There are also doubts related to management’s cautious commentary about second-quarter monthly average user (MAU) growth.

“Unti l now, concerns around Twitter have focused mostly on user growth and the ultimate size of the platform, with monetization being somewhat disconnected,” said Doug Anmuth, an analyst at J.P. Morgan.

“But that will now change some as Twitter needs to show advertisers it can deliver strong ROI and greater scale, albeit on an overall user based with modest growth.”