Twitter shares took a tumble Wednesday on poor user growth data which did not sit well with overexcited analysts and investors. There have been many critics of the social media phenomenon ever since the company decided that it would go public. Most of the criticism was based around the notion that Twitter, although it was a popular phenomenon, was not positioned to turn its popularity into profits as well as some of its competitors like Facebook. Proponents however argued that Twitter would be able to continuously grow while finding creative ways monetize its immense popularity and millions-strong user base.
As the company released its first quarterly report since its highly celebrated IPO however, questions began to arise once again regarding its long-term prospects. Surprisingly, profits were not the center of attention as Twitter exceeded expectations and posted fourth-quarter revenue of $243 million. What had critics and analysts chirping was instead the poor user-growth numbers which showed Twitter had 241 million monthly active users, representing just under 4 percent growth over the previous quarter. This is the poorest growth in some time considering that the company, during the first three quarters of the year, enjoyed 10 percent, 7 percent, and 6 percent growth respectively. Thus the 3.8 percent reported for the fourth quarter overshadowed much of the good news in the eyes of analysts and investors.
It was exactly such growth numbers that caused Twitter shares to tumble nearly 18 percent Wednesday, falling from $65.97 to $54. This is still significantly up from its $26 share price at its IPO, but the tumble has again brought up the ugly topic of whether the company is truly a good platform for long-term success in the social media and mobile advertising markets. Mobile advertising is the one area that has fueled Twitter’s incredible climb in share price. One major factor causing the shares to trade at more than 30 times 2014 sales, is the hope that Twitter will find a way to creep into the mobile advertising market currently dominated by Facebook and Google. Critics have long argued that Twitter would not be able to monetize its popularity in the necessary manner, but the metric which had been focused on to shed light on the area appears to be the company’s user growth.
The poor growth data however is overshadowing strong statistics, and according to company CEO Dick Costolo, the necessary changes have been made to turn the user numbers around. Costolo, who was hailed a hero for an amazing IPO just a few months ago, has now found himself playing defense and fielding piercing questions about whether Twitter can live up to the high expectations set for it.
Costolo did well to field the questions, and did point to important information being overshadowed by the highly-cited user growth data. The company’s chief executive stated that changes were made to simplify the process of signing up for new members, a process which may have intimidated would-be new Tweeters in the past. He also focused attention on changes made regarding the mobile app which he stated would be a major factor in turning around user growth numbers.
As the chips lie, it appears that only time will show whether Costolo and company can turn around the numbers to the satisfaction of Wall Street and other stakeholders. For now, Twitter shares have hit a little speed bump and tumbled nearly 18 percent on disappointing user growth numbers which look to have incited some fear from analysts that the company may not live up to everyone’s hopes. In truth however, the shares are still soaring in comparison to their IPO price, so it may be that some investors simply blew Twitter up a little higher than it deserved. As 2014 continues to unfold, and Twitter moves from forecasts to quarterly reports, whether the company can gain market share in the mobile advertising market will become more clear, and analysts questions will be answered with hard numbers instead of forecasts and goals.
By Daniel Worku