Twitter Reports Weak Earnings and the Stock Is Crashing

Twitter Shares Plunge After Sales Forecast Cut

Twitter Inc. posted first-quarter revenue that fell short of estimates and cut its sales forecast as the company struggles to attract more users and advertisers. The stock fell 18 percent, fueled by the early release of results.

Revenue is a new concern for investors, who have spent the past year criticizing slowing user growth. Sales will be $470 million to $485 million in the second quarter, Twitter said in a statement Tuesday, missing analysts’ average projection for $538.1 million. Twitter cut full-year revenue guidance to $2.17 billion to $2.27 billion, from the previous range of $2.3 billion to $2.35 billion.

“It calls into question why they didn’t see this coming,” said Victor Anthony, an analyst at Axiom Capital Management, who has a buy rating on Twitter’s stock. “I don’t think anyone ever questioned their ability to generate revenues.”

The Twitter logo is seen at the reception area inside the Twitter Inc. headquarters in San Francisco, California, U.S. on Friday, Sept. 19, 2014. Twitter Inc. raised $1.8 billion after boosting its first-ever debt offering, selling notes that owners can convert into the microblogger's stock at a price thatÕs 47 percent above yesterday's closing level.

Photographer: David Paul Morris

The number of monthly active members rose 18 percent to 302 million in the latest quarter compared with 20 percent in the prior period.

Chief Executive Officer Dick Costolo has been pushing product and engineering teams, which are being led by new managers, to step up the pace of innovation and dispel any doubts about Twitter’s potential as an advertising and social-media destination. The San Francisco-based company is facing greater pressure to show that such initiatives are delivering more users and revenue, according to Brian Wieser, an analyst at Pivotal Research Group.

“When you’re communicating with investors there’s some expectation that you’ll actually deliver,” said Wieser, who has a hold rating on Twitter’s stock. “The message needs to be matched by numbers, or Twitter’s credibility starts to become an issue.”

Revenue Focus

Twitter’s revenue team, led by Adam Bain, is known for its ability to negotiate large deals, event though Twitter’s audience is about a fifth the size of Facebook Inc.’s

Revenue rose 74 percent to $436 million, missing analysts’ average projection for $456.2 million. The results were first reported by Selerity Inc., a New York-based provider of financial news and information, less than hour before the end of Tuesday’s trading.

“Revenue growth fell slightly short of our expectations due to lower-than-expected contribution from some of our newer direct response products,” Costolo said in the statement.

Twitter fell 18 percent to $42.27 at the close in New York. Trading was temporarily halted following Selerity’s report.

The results leaked out early on the Internet — long before markets closed — sending traders into overdrive.

Slowing Growth

Earnings excluding some items were 7 cents a share, compared with analysts’ average estimate for 4 cents. Twitter’s first-quarter net loss widened to $162 million from a loss of $132.4 million a year earlier.

Costolo, facing criticism because of slowing user growth, promised investors in November that the company would start revamping its products and services to make them easier to use. That has resulted in new features such as “While You Were Away,” which delivers the most popular tweets that occurred during a person’s absence, and Highlights, an Android feature that pushes a twice-daily digest of tweets direct to a person’s phone notifications.

The tweaks, which are helping to minimize the flood of information, are aimed at attracting new users. Twitter’s home page, which used to just have an option to log in, now has categories, such as Nascar and cute animals, for people to explore even when they aren’t logged in to an account. Those who do choose to sign up for the first time get an instant timeline based on their phone contacts and interests, making it easier to get started on the product.

New Deals

Separately, Twitter is teaming up with Google Inc. to sell more ads. Under a new agreement, marketers using Google’s DoubleClick advertising service can buy Twitter’s Promoted Tweets, the search giant said in a blog entry Tuesday. Twitter charges clients to highlight such postings into users’ feeds across the service.

Twitter also said it acquired TellApart, a company that helps advertisers find potential buyers across the devices they use. TellApart, which didn’t disclose terms for the deal, counts Costolo among its investors.

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