Twitter’s User Growth Continues to Disappoint, Revenue Surges

Updated on
Twitter CEO Costolo: We Suck at Dealing With Abuse

Dick Costolo is getting a temporary reprieve from Wall Street criticism after Twitter Inc. posted quarterly revenue that topped estimates and forecast that the number of new users will pick up.

The shares soared 16 percent after Twitter said that fourth-quarter revenue increased 97 percent to $479.1 million, with the net loss narrowing to $125.4 million. The San Francisco-based company also projected adding 13 million to 16 million users in the first quarter, up 4.5 percent sequentially -- faster than the 1.4 percent growth in the prior period.

The stock increase added to gains so far this year that are reversing a 44 percent drop in 2014. Chief Executive Officer Costolo, who has been under fire for slowing user growth and management turbulence, is working to recover investors’ trust with new features to attract people to the microblogging site and to rev up advertising revenue.

“We know they have the monetization tools to significantly grow the business,” said James Cakmak, an analyst at Monness Crespi Hardt & Co., adding that investors may forgive Twitter for slow user growth because of moves to distribute tweets more widely. “They get a pass this time.”

In an interview, Costolo said user growth remains a top priority and added that he is confident Wall Street is gaining “an increasingly solid understanding of the strategy that we’ve laid out, the way we’re pursuing that strategy and how we think about evaluating ourselves as we exercise that strategy.”

Twitter climbed to $48.01 at the close in New York, the biggest gain since July. The stock plunge last year compared with an 11 percent gain in the Standard & Poor’s 500 Index.

Growth Issues

Twitter isn’t out of the woods with investors. Membership growth continues to decelerate year-over-year, even with the forecast for user growth to pick up sequentially in the current quarter.

For the fourth quarter, monthly active users increased 20 percent from a year ago to 288 million, compared with 23 percent growth in the prior period. The company said the introduction of a new mobile operating system from Apple Inc. and integration issues cost it 4 million new users.

For the first quarter, Twitter projected revenue of $440 million to $450 million, compared with the average analyst estimate of $449.9 million.

“He did a great job taking some fairly negative results and putting them in a positive light,” Nate Elliott, an analyst at Forrester Research Inc., said of Costolo. “But the fact is, every quarter they make a big deal about how important it is to grow their user base, and every quarter they fail.”

Turning Around

Costolo said on a conference call on Thursday that the slowdown of new monthly active users is already turning around. He added that the pace of product introductions has quickened.

“You’ve already seen evidence of this improvement in our cadence of product launches,” he said.

Costolo last year ousted his chief operating officer and switched his heads of finance, product and engineering. In November, Twitter held an analyst meeting where the CEO made a list of promises about how the company would accelerate the release of new features to retain and recruit users, such as tools to shoot and edit video, or send messages between groups of people.

Twitter has sought to show it is making good on the promises, recently unveiling group chat and more video capabilities. The company on Thursday said it is testing a new homepage to draw people in, as well as “instant timelines” so new users can more easily get started on the service.

“We launched or have public experiments out for nearly all of the features we talked about at the analyst day in November,” Costolo said on the call.

Sticky Site

The changes are intended to keep people glued to Twitter’s product for longer. In the fourth quarter, the company said its members viewed their timelines more often, with 182 billion views, compared with 181 billion in the prior quarter.

Mobile advertising was 88 percent of total ad revenue in the fourth quarter, Twitter said. International revenue more than doubled.

Costolo said on CNBC Friday that more needs to be done to help users grapple with nasty and abusive posts on the service. He said the company is working on algorithms to deal with the issue so that “the onus and the burden isn’t on the person being abused to report it,” adding that the company is making “aggressive efforts” to reduce trolls on Twitter.

Google Deal

Twitter has addressed slowing user growth in the past by saying that a wider audience of people see tweets on news websites and television sets than they do on the company’s own site. Bloomberg News reported on Wednesday that Twitter has also struck a deal with Google Inc. to make tweets easier to find on the search engine, which Costolo confirmed on the conference call.

The company is also extending advertising beyond its main site. This week, Twitter said it would push ads known as Promoted Tweets onto websites and apps from Flipboard Inc. and Yahoo Japan Corp. Twitter is also working to convince outside developers to use its mobile-advertising marketplace, MoPub, to run ads on their games and applications.

Download:

Before it's here, it's on the Bloomberg Terminal. LEARN MORE