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Twitter's user growth has stalled, but its business keeps improving

Twitter's user growth has stalled, but its business keeps improving

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The company's revenues continue to roar, but its public struggles are mounting

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The evolution of Twitter over the last two years has been the opposite of what most expected before the startup went public. Instead of growing to a billion users without much money to show for it, the company's user growth has stalled out while its revenue has boomed. Its inability to keep pace with the size of rivals like Facebook and even Instagram has spurred rumors that CEO Dick Costolo will be forced out. To keep employees calm, Twitter executives have reportedly restricted access to crucial statistics, like the number of monthly active users. Oh, and its inability to deal with rampant abuse on the platform is causing core users to abandon ship.

Today Twitter reported its fourth quarter earnings, posting $479 million in revenue and a Non-GAAP profit of $79 million. That's well above the $453.34 million in sales analysts projected and double the expected profit. The company's quarterly revenue grew 97 percent year over year and 111 percent when comparing annual revenue between 2014 to 2013. Investors have been willing to view Twitter through the lens of its Non-GAAP earnings, which discount the stock options it uses to hire and retain top talent. When those are factored in, the company continues to lose money, posting a net loss of $125 million for the quarter.

Twitter's user base grew less than two percent

As expected, user growth was the downside. The company reported just 288 million monthly active users, an increase of less than 2 percent from the 284 million it had last quarter. Analysts were predicting user growth of just 2.8 percent, or 292 million, but Twitter missed even that conservative estimate. Year over year the user base was up about 20 percent.

Twitter says its growth would have been double the 4 million users it added in the quarter if not for issues with iOS 8. After the switch from iOS 7 to iOS 8, 1 million Twitter users disappeared, either because they forgot their password or didn’t download the app again. Another 3 million users were no longer counted as active due to a change in the "Shared Links" section of the Safari mobile browser. In iOS 7, Shared Links — which pulls in content shared by the people you follow on Twitter and other social networks — fetched content in the background automatically. As of iOS 8, Shared Links only fetches content when you visit that section of Safari. Because of this change, 3 million people who were counted as active users of Twitter in the previous quarter no longer were considered active.

Engagement as measured by timeline views, was also up less than one percent from last quarter and up 23 percent year over year. But Twitter is getting better at monetizing those views. The company earned $2.37 for every one thousand timeline views, up 60 percent year over year. Overall investors were happy with the report, and the stock was up more than 8 percent in after hours trading.

Costolo says user growth will pick back up

"We closed out the year with our business advancing at a great pace. Revenue growth accelerated again for the full year, and we had record quarterly profits on an adjusted EBITDA basis," said Costolo. "In addition, the trend thus far in Q1 leads us to believe that the absolute number of net users added in Q1 will be similar to what we saw during the first three quarters of 2014."

In terms of new products, Costolo said on the earnings call that the company will be pushing out its coverage of the upcoming Cricket World Cup to people who don't have a Twitter account. There were few details, although he mentioned it would work on both feature and smartphones. Part of the big picture strategy seems to be finding those key scenarios, like live sporting events, elections, and award shows, where Twitter's real time feed can deliver value to people who don't otherwise use its service, but where advertisers are plentiful.

The company also confirmed the deal to begin showing tweets in Google searches which was reported yesterday.

Correction, 6:59 p.m.: This story has been updated to reflect that the section of Safari impacting Twitter's user numbers is Shared Links, not Reading List.