Twitter (TWTR) may have captivated millions of insiders in the twin realms of technology and media, but its most persistent challenge can be easily characterized in less than 140 characters: “Grow the user base faster and enlist more engaged, mainstream users i.e. #BeMorelikeFacebook.”
In its second earnings report as a public company, the San Francisco company showed that it’s still struggling with that fundamental test. Though it more than doubled quarterly revenue to $250 million and bested analyst estimates of $241 million, Twitter’s active user base grew only 25 percent to 255 million, down from 30 percent growth the previous quarter. It also posted another quarterly loss of $132 million, or about 23 cents a share.
Twitter stock dropped about 10 percent in after-hours trading. Its shares are down 36 percent on the year and a few percentage points since its November initial public offering. “Revenue may not be the most important consideration once again this quarter,” wrote Brian Wieser, a senior analyst at Pivotal Research Group, in a note to investors. “Investors will be overly focused on user growth.”
Twitter employees have their first opportunity to sell shares on Monday, May 5, which is also likely to depress the stock price. Twitter’s founders and chief executive recently said they have no current plans to sell their shares.
Twitter has another problem beyond user growth: engagement. “Timeline views,” an important representation of how active its users are with the service, reached 157 billion in the first quarter, an increase of 15 percent. That’s down from a 26 percent growth rate the previous quarter. It’s another sign that Twitter’s growth may be slowing, despite the company’s rollout of new features such as a redesigned profile page that allows users to further customize background photos and is similar in appearance to Facebook’s (FB) profile page.
Twitter’s ad revenue is one area that investors do not have to worry about. The company reported ad sales of $226 million in the first quarter, up 125 percent over the same period a year earlier. Advertisers are buying more placements like sponsored tweets and trends. Twitter also has plenty of room to expand internationally. More than two-thirds of its members are based overseas, yet international sales, which increased 183 percent year-over-year, only constituted 28 percent of total revenue.
Over the last year, Twitter has also intensified its focus on dipping into the vast pool of television ad revenues. As part of a program called Amplify, Twitter is approaching advertisers along with representatives of content owners like Viacom and the NFL and selling sponsorships of tweetable video clips such as sports highlights and award-show acceptance speeches.
“We had a great first quarter,” said Twitter CEO Dick Costolo, who cited revenue growth and particularly the acceleration of growth in the U.S., where the service gained 3 million users. Costolo added that Oscar-related tweets were viewed more than 3 billion times in the days after the awards show, and he called Twitter “the best companion experience to what’s happening in [our users’] world.”
Twitter’s ad products are working particularly well on smartphones and constitute 80 percent of the company’s sales. It has 2.39 percent of the global mobile ad market, up from 1.48 percent in 2012, according to EMarketer. Facebook has 17.54 percent of the market for smartphone ads.