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Twitter’s user growth disappoints

by Lesotho Times
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NEW YORK – One year after its initial public offering, Twitter Inc. is still having a hard time convincing investors to look beyond one touchy metric: user growth.

The social-media company reported Monday that revenue once again more than doubled in the third quarter to $361 million (M3.93 billion), surpassing expectations and causing it to raise guidance for the full year.

But Twitter’s user growth — the percentage change in the number of users who log in at least once a month — slowed again after gaining momentum in recent quarters, reigniting concerns the service is having trouble keeping up with the growth of larger rival Facebook Inc.

Twitter’s shares sank about 10 percent in after-hours trading on Monday to $43.65, shaving off roughly $3 billion in market value to about $26.9 billion. The drop washes out some of the stock advances from three months ago, when Twitter reported strong second-quarter results across the board and investors sent shares surging 29 percent.

The issue for the San Francisco company lies in convincing investors it is bigger than what it appears to be, as Wall Street remains stubbornly focused on user gains over moneymaking. The more users that sign up and spend time on Twitter, the more potential for targeted advertising, Twitter’s main revenue source.

On Monday, Twitter said it added 13 million monthly active users in the three months through September, up 4.8 percent, reaching 284 million users world-wide. While in line with some analysts’ expectations, it is a slower pace than the 6.3 percent it added in the previous quarter.

“We had another very strong quarter financially,” said Chief Executive Dick Costolo during an earnings call with analysts. “I’m happy with the strategies and the quality of the work we’re doing but given our significant aspirations and the breadth of the opportunity in front of us, it’s more critical than ever that we increase our overall pace of execution.”

Increasing user numbers as well as engagement has been a top priority for Twitter ever since it went public in November, after which investors knocked the company for showing signs that its size may have peaked.

Since then, the company has focused on making the service simpler to use for members beyond the early adopters. At the same time, Twitter executives have spoken out about Twitter’s reach beyond core users amid the inevitable comparisons with Facebook, which has more than four times the active users at about 1.32 billion.

On Monday’s call, Mr Costolo attempted to explain Twitter’s total audience “as a series of geometrically eccentric circles.” In short, he said, there are three audience groups: the core users; those who visit the site but don’t log in; and those who see Twitter content embedded on other sites across different screens, known as the syndicated audience.

Twitter’s primary focus in recent quarters has been to improve the experience across all of these groups.

This quarter it rolled out a redesigned sign-up process to get new users up to speed faster by getting them to follow voices they would find interesting sooner. Mr. Costolo said a new user profile design on Apple’s iOS system has increased interaction among the logged-out audience.

The need for Twitter to make the service a draw for users, both new and existing, on a daily basis is underscored by the drop in user activity in the latest quarter, which didn’t have a big event such as World Cup soccer games to help drive usage. Twitter executives had credited the soccer tournament for encouraging users to check the service for scores. On the call with analysts, Twitter financial chief Anthony Noto said international growth also suffered from not having other big events such as the elections in India. And he cited “authentication issues” in Asia that cost the service one to two million users.

At the same time, it is becoming less clear how “engaged” users are on the site. This is emblematic of Twitter’s growing pains as “timeline views,” the company’s own measure of user activity, has become less relevant amid the slew of product changes. Twitter said “timeline views,” counted each time a user refreshes a page on desktop or mobile device, reached 181 billion, an increase of 14 percent from a year earlier and 4.6 percent from the second quarter.

But timeline views per monthly active user declined 7 percent to 636 views per monthly active user compared with a year earlier.

Evercore analyst Ken Sena said the metric increasingly doesn’t reflect other forms of engagement, such as shared tweets, visits to profile pages or when a user listens to an audio track.

“I don’t blame anyone who relies upon those metrics,” said Chris Sacca, a venture capitalist and longtime Twitter investor, referring to user growth and timeline views, in an email. “But, the long-term story will show that they aren’t good measures.”

Twitter has yet to turn a profit, and posted a loss of $175.5 million in the latest quarter, as it continues to build out its business and compensate newly hired engineers.

Still, its revenue has hummed along as it continues to boost its advertising offerings and arm advertisers with more tools to target users. Earlier this year, Twitter released a new ad that lets users download an app immediately to their phones, and the company started testing video ads in recent months. The company projected fourth quarter revenue to be in the range of $440 million to $450 million and raised its full-year projection to as much as $1.38 billion.

“We’re seeing good momentum behind Twitter from a demand standpoint, but it’s still early as a platform,” said Chris Amos, chief marketing officer at Ampush, a social-media marketing platform. “We’re actively testing new products with advertisers, and we expect spend to continue trending upward over the long-term, including Q4 as certain advertisers expand their test budgets and new ones start to ramp on the platform.” – WSJ


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