Twitter troubles deepen as lack of user threatens growth
Twitter Inc. added no new users in the fourth quarter, confirming the fears of advertisers and investors alike: the socialmedia site is in real trouble.
The company has faced sharp criticism over slowing growth in its audience since its 2013 initial public offering. Even as Chief Executive Officer Jack Dorsey rolled out efforts to make its product more mainstream, by some measures Twitter's user base shrank from the third quarter.
Twitter tried to divert Wall Street analysts' attention by listing reasons to believe in its future, including a stronger focus on live events and video, several coming tweaks to the product that it says will benefit advertisers, and a vow to aggressively hire good board members and engineers. Still, a disappointing firstquarter revenue forecast indicates the lack of user growth is also hurting its ability to draw in more ad dollars, threatening its core business.
"This is the critical period for Twitter, and they need to show more than just optimism," said Rob Sanderson, an analyst at MKM Partners LLC. "It's very vulnerable right now, and especially if we are heading into a recessionary environment, those ad dollars are going to become more difficult to get -- for everybody."
Monthly active users were 320 million in the last three months of the year - - the same number the company reported in the third quarter -- while analysts on average had estimated 324 million. Twitter said it will stop including users on older, non- smartphone mobile devices in its overall count. Without these so- called SMS fast followers, Twitter's user base fell from the third quarter, to 305 million from 307 million, though the company said since the fourth quarter ended it has already recouped those user losses.
Revenue in the first quarter will be $595 million to $610 million, the San Francisco-based social network said Wednesday in a statement. That compared with an average analyst projection of $627.6 million, according to data compiled by Bloomberg.
Twitter shares have dropped 35 percent this year amid deepening skepticism about the company's turnaround efforts under Dorsey, a co-founder who returned as CEO. Dorsey, who started his tenure in October with staff cuts and the appointment of a new chairman, has been rallying his teams to make the site more accessible and useful for following news stories and live events. On Wednesday he outlined his five priorities: making the main product easier to use, investing in live streaming video, giving creators and influencers better tools, investing in making Twitter safer, and supporting developers.
Dorsey's bullishness wasn't enough to boost the shares, which have declined 68 percent in the past year, in extended trading. The stock fell about 3.3 percent, after sliding as much as 14 percent immediately after the fourth-quarter earnings report. They rose 4 percent to $14.98 at the close in New York. In the fourth quarter, sales rose 48 percent to $710.5 million, in line with analysts' predictions. Excluding certain costs, fourth-quarter profit was 16 cents a share, compared with an average analyst estimate of 12 cents. The company's net loss narrowed to $90.2 million, or 13 cents, Twitter said in the statement.
Twitter appointed Dorsey as permanent CEO in October after a search to replace Dick Costolo, who resigned amid pressure from Wall Street over slowing growth. Dorsey, who also runs payments company Square Inc., has been pushing the staff to change even the aspects of Twitter's site that seem untouchable. For example, Twitter has considered lifting a 140-character limit in posts, which has been the format since the company started. The company said Wednesday it will also change the ".@" structure for replies on the site. Earlier in the day, Twitter said it would start displaying more popular tweets at the top of a user's feed, instead of keeping them in the company's traditional reverse-chronological stream.
"They definitely needed to do something in order to boost new user growth," said Orli LeWinter, vice president of strategy and social marketing at digital marketing agency 360i. "Hopefully this is it." The year will include many more "significant changes" for the product, Twitter said.