Twitter reports soaring revenues but struggles to recruit new users

Share price drops 10% on third-quarter results that
show Twitter added only 13 million new users and
remains unprofitable

Twitter’s share price dropped 10% in after-hours
trading on Monday amid continuing signs of
slowing growth at the social media company.
Results released on Monday for the third quarter of
the year show Twitter’s revenues soared to $361m,
up 114% from the same period last year, beating
expectations. But the number of monthly active
users of the service grew just 13 million to 284
million from the previous quarter. Analysts had
predicted growth would between 14 million and 17
million.

The number of monthly active users represents a
23% increase year on year but was up just 4.8%
from the last set of results and below the 6.3%
quarter-on-quarter growth it reported in the
second quarter.

The company has shaken up management and
begun changing its platform in order to make it
more accessible to new users. During the quarter it
updated its service on Apple’s iPhone, introduced a
new options for its Vine video service and
launched a new service tailored to NFL fans. Last
week it held its first developers conference in four
years, a move to embed its real-time technology in
a new generation of apps and services.
While revenues are growing strongly, Twitter
remains unprofitable. It reported a net loss of
$175m for the quarter, up from $64.6m last year.
And the slowing growth rate has worried
investors.

Twitter’s share price was $48.56 when stock
markets closed on Monday, down 24% this year.
The company also disappointed investors with its
prediction for revenues for the current quarter.
Twitter is projecting revenues between $440m and
$450m, the midpoint of which is below the average
analyst estimate on Thomson Reuters of $448m.
“We had another very strong financial quarter,”
said Dick Costolo, CEO of Twitter. “I’m confident in
our ability to build the largest daily audience in
the world, over time, by strengthening the core,
reducing barriers to consumption and building
new apps and services.”

Twitter’s stated aim is to eventually reach every
person on the planet. In a conference call with
analysts Costolo said he was happy with the
“strategy and the quality” of what the company
was doing but that given the scale of the
company’s ambitions it was “more critical than
ever” for Twitter to pick up the pace.
The company remains strong in mobile – the
fastest growth area for advertisers. Mobile
advertising revenue accounted for 85% of total
advertising revenue in the quarter.

Twitter accounted for 0.5% of global digital ad
revenues in 2013, according to eMarketer. That
figure is expected to increase to 0.8% this year. By
comparison, Facebook, which reports its latest
quarterly results tomorrow, is expected to increase
its share of the worldwide digital ad market from
5.8% in 2013 to 8% this year.