Twitter Stock Plummets Despite Revenue Growth

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Twitter’s stock plummeted by over 19 percent, even as the company’s revenue continued to rise. The drop follows reports of slow growth during last year’s fourth quarter. The drop occurred in pre-market trade on Thursday, after the company reported an apparent trend toward maturity.

This is the first time Twitter has released financial results since the company had its initial public offering last November, which did well. Twitter raised almost $2 Billion and saw its stock price surge 73 percent in its first day of trading. Investors value Twitter’s perceived ability to quickly turn user activity into genuine income for the company.

Shareholders sold off the stock after the company’s fourth quarter earnings report showed views fell seven percent to 148 billion for the fourth quarter of 2013. On a year-over-year basis, timeline views were up 26 percent, but short of the 50 percent increase reported in the third quarter.

Average Monthly Active Users (MAUs), the standard which measures Twitter’s activity, were 241 million as of December, 31, 2013; falling three percent short of the expected 249 million MAUs. The fourth quarter also only experienced four percent growth over the previous quarter.

In spite of falling short of the fourth quarter’s original expectations, Twitter experienced significant growth in 2013. Revenue increased by 110 percent from 2012, with an annual revenue of $665 million.

Twitter’s revenue is on pace for first quarter revenue to be at least $230 million, considerably higher than the previous estimate of $215.2 million. Analysts predict an annual revenue in excess of $1 billion for 2014.

Despite the concerns regarding Twitter’s stock, some experts remain optimistic about the company’s future, believing Twitter’s stock tumble is in fact a sign of stabilization. Pivot Group Analyst Brian Wieser states that the stock’s tumble will bring the value back to a level of reality, and thus solidify employee confidence. RBC Capital Markets Analyst Mark Mahaney agreed, though he adds: “is incumbent on the company to start doing things to make the service more mainstreamable.”

One reason for Twitter’s revenue jump is its successful targeting of the mobile market and advertisers. Twitter said about 75 percent of its advertising revenue now stems from mobile devices. Twitter’s remaining $23 million in revenue came from data licensing and other sources.

In spite of the revenue growth, Twitter remains unprofitable. The company’s costs continued to grow faster than revenue. For the fourth quarter, Twitter reported a net loss of $511.5 million, or $1.41 a share, during the fourth quarter. This is much worse than the previous year’s loss of seven cents a share. The increased costs were attributed to research and development, and sales and marketing.

In light of this situation, UBS analyst Eric Sheridan is less hopeful than is Wieser. His company issued a “sell” recommendation on the Twitter stock and cut its price target to $42 from $45. Seven other brokerages agree.

Sheridan stated that a concern for investors is a lack of mainstream adoption of Twitter. Its counterpart, Facebook, has been considerably more profitable than Twitter. Twitter can expand its profit margin, and thus make its stock profitable again, if it can reduce its own expenses or developing new and existing business. Twitter’s expenses has caused its stock to plummet, despite its overall revenue growth.

By Ian Erickson

WSJ
Reuters
Chicago Tribune

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