Twitter sinks 9% on lower-than-expected user growth

Steven Loeb · October 27, 2014 · Short URL: https://vator.tv/n/39ff

In Q3, Twitter doubled revenue to $361 million, handily topping estimates

Shares of Twitter are getting slammed in after-hours trading, as lower-than-expected user growth outweighed revenue that topped estimates in the third quarter, released late Monday.   

The stock tanked over 9%, after already losing 2.78%, or $1.39, in regular trading to finish at $48.56 a share. The stock is down over $16, or 25%, starting the year  at $65 a share.

The company posted quarterly revenue of $361 million, up 114% year-to-year, handily beating analyst expectations of $351 million. Twitter reported non-GAAP EPS of $0.1, matching expectations.

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

Twitter saw its average monthly active users (MAUs) grow 23% year-to-year to 284 million, adding only 13 million since Q2. Mobile MAUs represented 80% of the company's total MAUs. Analysts had been expected MAUs to reach at least 287 million. Its 5% quarter-to-quarter growth was down from  the 6% Twitter saw in  Q2. In a recent report, MMK Partners had said that anything below 14 million net adds would be a miss.

User growth has been a problem for the company in its previous earnings reports. In the second quarter it was able to beat expectations, but the company couldn't make it happen again, and it is being  punished for it.

The rest of the report all seems to read pretty well. Timeline views reached 181 billion for the third quarter of 2014, an increase of 14% year-over-year. The 5% quarter to  quarter increase  may have also hurt Twitter, as it  had seen a 10% increase in the second quarter, though those numbers may have been inflated due to the World Cup.

Once again, almost all of Twitter's revenue came from advertising, which accounted for $320 million, a 109% year to year increase.  Mobile advertising revenue was 85% of total advertising revenue. Advertising  revenue per thousand timeline views reached $1.77 in the third quarter of 2014, an increase of 83% year-over-year.

Data licensing, and other revenue, came to $41 million, an increase of  171% year-over-year. Of Twitter's total revenue, $121 million, or 34%, was international, an increase of 176% year-over-year.

GAAP net loss was $175 million for the quarter, compared to a net loss of $65 million in the same period last year.

Twitter is projecting revenue of between $440 and $450 million, with adjusted EBITDA in the range of $100 million to $105 million, for the next quarter. For the full year 2014, it expects to see revenue between $1.365 billion to $ 1.375 billion, with an adjusted EBITDA in the range of $260 million to $265 million.

Last quarter the company had projected revenue of between $330 and $340 million for Q3, and revenue between $1.310 billion to $1.330 billion for the full year.

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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.