Flat user growth sends Twitter shares down

Steven Loeb · February 10, 2016 · Short URL: https://vator.tv/n/4337

The company saw 320 million monthly active users in Q4, seeing no growth from Q3

It seems as though, for many, this quarter for Twitter was something close to make or break time. Shares of Twitter have lost 70 percent of their value in a year, as the company struggled to get new users onto the platform. Investors seem to be losing patience, waiting for the company to fix the problem.

The company did well in its quarter earnings, posting revenue of $710 million, an increase of 48% year-over-year, matching expectations of $709.97 million. It reported non-GAAP EPS of $0.16, beating expectations of $0.12 a share.

Yet, its stock tanked over 11 percent out of the gate after gaining 4.03 percent, or $0.58, in regular trading to finish at $14.98 a share. It has since bounced back, and it's now down only 2.5 percent.

So what exactly is going on with its stock price? Once again, lower-than-expected user growth was probably the main culprit.

Twitter saw its average monthly active users (MAUs) grow a mere 9 percent year-to-year to 320 million, but were completely flat from Q3. Analysts had expected Twitter to report 325 million monthly users, or 1.5 percent growth.

Excluding SMS Fast Followers, MAUs were only 305 million for Q4, up only 6 percent year-over-year, but they were actually down on a sequential basis from 307 million in the third quarter. The company is already stressing that, as of the end of January, it has already seen total MAUs, excluding SMS Fast Followers, return to Q3 levels.

“We’re confident that, with disciplined execution, this growth trend will continue over time," the company said.

Still, these are troubling numbers for the company. User growth has been a big problem for the company in previous earnings reports, so much so that they likely caused Dick Costolo his job. Despite finally figuring out a way to monetize logged out users, and doing things to make the service less intimidating to new users, this is still the major problem at Twitter right now.

Mobile MAUs represented 80% of the company's total MAUs.

For the full year 2015, Twitter's total revenue reached $2.2 billion, up 58% year over year with more than $550 million in adjusted EBITDA.

Once again, almost all of Twitter's revenue during the last quarter came from advertising, totaling $641 million, an increase of 48% year-over-year. Mobile advertising revenue was 86% of total advertising revenue. The company's total number of active advertisers to 130,000 in Q4, up almost 90 percent year over year.

Data licensing, and other revenue, came to $70 million, an increase of 48 percent year-over-year. Of Twitter's total revenue, $247 million was international, an increase of 51 percent year-over-year.

For the upcoming quarter, Twitter is projecting revenue of between $595 million and $610 million, with adjusted EBITDA in the range of $150 to $160 million. For the full year 2016, it expects capital expenditures to be $300 million to $425 million, with an adjusted EBITDA in the range of 25 percent to 27 percent.

(Image source: ubergizmo.com)

. Instead, Twitter grew its total user base 0 percent sequentially.

It’s not a pretty picture:

Twitter’s user number includes both traditional active users as well as what Twitter refers to as “SMS Fast Followers” (people who receive tweets via text message, popular in emerging markets). Excluding SMS Fast Followers, Twitter’s user base grew 6 percent year over year to 305 million, but was down on a sequential basis from 307 million in Q3 2015. Twitter is trying to save face by saying that its end of January data shows total monthly active users excluding SMS Fast Followers returned to Q3 levels.

“We saw a decline in monthly active usage in Q4, but we’ve already seen January monthly actives bounce back to Q3 levels,” Twitter stated in its press release. “We’re confident that, with
disciplined execution, this growth trend will continue over time.”

For the last few quarters, SMS Fast Followers contributed to the majority of monthly active users Twitter added on a sequential basis. In Q4 2015, the growth there offset the decline for the remaining user base — this is exactly why Twitter started including SMS Fast Followers in its earnings.

Mobile monthly active users represented approximately 80 percent of the total figure, a number that has been flat since Q3 2014.

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Steven Loeb

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Twitter

Startup/Business

Joined Vator on April 9, 2008

What is Twitter?

Twitter is an online information network that allows anyone with an account to post 140 character messages, called tweets. It is free to sign up. Users then follow other accounts which they are interested in, and view the tweets of everyone they follow in their "timeline." Most Twitter accounts are public, where one does not need to approve a request to follow, or need to follow back. This makes Twitter a powerful "one to many" broadcast platform where individuals, companies or organizations can reach millions of followers with a single message. Twitter is accessible from Twitter.com, our mobile website, SMS, our mobile apps for iPhone, Android, Blackberry, our iPad application, or 3rd party clients built by outside developers using our API. Twitter accounts can also be private, where the owner must approve follower requests.

Where did the idea for Twitter come from?

Twitter started as an internal project within the podcasting company Odeo. Jack Dorsey, and engineer, had long been interested in status updates. Jack developed the idea, along with Biz Stone, and the first prototype was built in two weeks in March 2006 and launched publicly in August of 2006. The service grew popular very quickly and it soon made sense for Twitter to move outside of Odea. In May 2007, Twitter Inc was founded.

How is Twitter built?

Our engineering team works with a web application framework called Ruby on Rails. We all work on Apple computers except for testing purposes.

We built Twitter using Ruby on Rails because it allows us to work quickly and easily--our team likes to deploy features and changes multiple times per day. Rails provides skeleton code frameworks so we don't have to re-invent the wheel every time we want to add something simple like a sign in form or a picture upload feature.

How do you make money from Twitter?

There are a few ways that Twitter makes money. We have licensing deals in place with Google, Yahoo!, and Microsoft's Bing to give them access to the "firehose" - a stream of tweets so that they can more easily incorporate those tweets into their search results.

In Summer 2010, we launched our Promoted Tweets product. Promoted Tweets are a special kind of tweet which appear at the top of search results within Twitter.com, if a company has bid on that keyword. Unlike search results in search engines, Promoted Tweets are normal tweets from a business, so they are as interactive as any other tweet - you can @reply, favorite or retweet a Promoted Tweet.

At the same time, we launched Promoted Trends, where companies can place a trend (clearly marked Promoted) within Twitter's Trending Topics. These are especially effective for upcoming launches, like a movie or album release.

Lastly, we started a Twitter account called @earlybird where we partner with other companies to provide users with a special, short-term deal. For example, we partnered with Virgin America for a special day of fares on Virginamerica.com that were only accessible through the link in the @earlybird tweet.

What's next for Twitter?

We continue to focus on building a product that provides value for users.

We're building Twitter, Inc into a successful, revenue-generating company that attracts world-class talent with an inspiring culture and attitude towards doing business.