TWITTER LEVELS OUT
Lack of growth hurts revenue
The number of people using Twitter did not increase in the fourth quarter, confirming the fears of advertisers and investors alike: the social-media site is in real trouble.
The company has faced sharp criticism over slowing growth in its audience since a 2013 initial public offering. Even as chief executive 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 first-quarter 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.”
The shares fell to their lowest price ever, dropping 4.5 per cent to close at US$14.31 in New York Thursday.
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 US$595 million to US$610 million, the San Francisco-based social network said Wednesday in a statement. That compared with an average analyst projection of US$627.6 million, according to data compiled by Bloomberg.
Twitter shares dropped 35 per cent this year through Wednesday 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.
While speculation has begun to swirl about a takeover, chief operating officer Adam Bain suggested Twitter isn’t heading down that path yet.
“We believe Twitter can remain a powerful independent company,”
This is the critical period for Twitter, and they need to show more than just optimism.
Bain said Thursday.
Several analysts downgraded their recommendation on the stock, including Evan Wilson at Pacific Crest Securities, who lowered his rating to sector weight from overweight.
He said he doesn’t have confidence in management’s five-point turnaround or think it will attract new or lapsed users.
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.
Meanwhile, social-media competitors like Instagram and Snapchat are amassing larger audiences and focusing their products more on what Twitter does best: realtime news and information. Larger rivals, like Facebook and Google, have built out real-time advertising capabilities, too.
Twitter is expected to capture nine per cent of worldwide socialmedia advertising spending this year, compared with Facebook’s 65 per cent, according to EMarketer.
“They were the only game in town for live ads a while ago — even a year ago,” said Jonathan Adams, chief digital officer at Maxus, a media agency.
“Their share is eroding relative to the gains their competitors are making.”