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Twitter doesn't have explosive growth, and investors aren't happy

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The company's earnings deliver on its projections, but investors were hoping for more than a passing grade

Twitter reported its third quarter earnings today, and despite robust performance, the company's stock continues to struggle. Twitter's booked $361 million in revenue over the last three months, more than double what it did for the same period in 2013. It also hit its marks on profit — $7 million, which is exactly what investors were expecting. But the stock is down more than 10 percent in after-hours trading, as investors flee a stock that hasn't shown the upside they were looking for in a young, high-flying social network.

What does that mean? Basically that investors were hoping Twitter would do more than just clear the low bar it had set for itself this quarter. They wanted a big surprise to the upside, and are punishing the stock for delivering nothing beyond its promised projections. On the earnings call, the company's chief financial officer, Anthony Noto, specifically warned investors not to expect Twitter to best its projections in the future.

Investors were hoping Twitter would do more than clear the low bar it set for itself

Investors may also be disappointed that the company's user growth has flattened significantly.  On average, the company had 284 million monthly active users over the last three months, an increase of 23 percent over the same period in 2013. But that's much slower growth than 2013, when Twitter was expanding on an average of about 50 percent year-over-year. CEO Dick Costolo said on the earnings call that the company's goal is to reach the largest audience in the world, but at this rate, they won't be catching Facebook anytime soon.

The value of Twitter's ads is growing

One metric that is moving in the right direction is the value of Twitter's ads. People checked their timelines 181 billion times, a 14 percent increase year-over-year. And Twitter got paid more for those views, making $1.77 for every thousand views of its timeline, a whopping 83 percent increase from the same period in 2013.

The profit that Twitter reported is not straightforward. It lost $175.4 million on based on the stricter set of accounting rules that public companies must file. On the looser standards, which is what investors have been monitoring for Twitter, it reported that small $7 million profit, or roughly 1 cent per share. The difference comes largely from whether or not you count stock-based compensation of its employees, which is a frequently used tool among tech companies in the highly competitive hiring environment of Silicon Valley.

Twitter believes its true audience is much larger than it now shows

On the call Costolo emphasized that Twitter sees its audience as a set of concentric circles. The 284 million people who sign in each month, the much larger group that regularly reads tweets but doesn't log in to create any, and the evan larger group that sees tweets when they appear in other media like news articles and TV broadcasts. Noto said the group of logged out readers was roughly two to three times the size of the logged in audience.

Noto called out the Indian election as an event which had driven activity in the previous quarter, but was missing this past three months. Its a reminder that Twitter is very dependent on political and sporting events to drive its business. This could be seen as both a blessing and a curse. It means Twitter lacks control over its growth to a certain extent. But it also means its users are highly engaged around topical events that can drive big advertising dollars.

Right now the company doesn't show ads to users logged into third party Twitter apps. When asked why it wasn't trying to capture value from those users, Costolo said that ads would be coming to services like Tweetdeck in the future.