Twitter investors panic at slow growth

The social-media company sees only a modest jump in users since its IPO, which caused the stock to tank in after-hours trading.

By Benzinga Feb 5, 2014 6:22PM

A computer displaying Twitter logo © Jens Kalaene/dpa/Corbis
By Louis Bedigian

Is Twitter (TWTR) the real deal? Investors got their first hint of an answer Wednesday afternoon when the social media firm reported its fourth-quarter results.

The company's monthly active users (MAUs) now stand at 241 million -- a 30 percent increase year-over-year.

When Twitter had its initial public offering on Nov. 7, 2013, the company had 231.7 million users. That growth may not have been fast enough for Wall Street, and shares of the company dived more than 17 percent in after-hours trading.

It's also still significantly lower than the 1.23 billion MAUs acquired by Facebook (FB).

Of course, it does not matter how many users Twitter can acquire if it can't monetize them.

During the fourth quarter, Twitter said that it continued to improve the return on investment for its advertiser by launching new products, such as TV Conversion Targeting. The company also launched a self-serve advertising platform to small- and medium-sized businesses in the United Kingdom, Ireland and Canada.

These and other efforts led to a surprise EPS of $0.02. Wall Street expected a loss.

Twitter's revenue arrived at $242.7 million. This was also a bit higher than Wall Street estimates, which were around $217.78 million.

"Twitter finished a great year with our strongest financial quarter to date," Dick Costolo, CEO of Twitter, said in a company release. "We are the only platform that is public, real-time, conversational and widely distributed and I'm excited by the number of initiatives we have underway to further build upon the Twitter experience."

High expectations

Before the market close, Evercore Partners' Ken Sena told Benzinga that he was expecting Twitter to report a strong quarter.

Wedbush analyst Shyam Patil had high expectations as well.

"Our checks were pretty positive for the fourth quarter," Patil told Benzinga this afternoon, adding that he expected upside to the estimates.

"Clearly the stock is reflecting some amount of upside," said Patil. "The question is how much?"

One of the challenges that Twitter faced was the fact that it did not have a target that, if achieved, would ensure the stock would rise.

"It's kind of a messy setup in that there's not a clear number they have to hit for the stock to go up," said Patil.

Ad revenue and user growth: A positive trend?

In addition to MAU increase to 241 million, Twitter's mobile MAUs jumped 37 percent to 184 million.

Timeline views rose 26 percent to 148 million

Better still, ad revenue per thousand timeline views increased 76 percent in the fourth quarter, rising to $1.49.

Future expectations

Twitter is forecasting first-quarter sales within the range of $230 million to $240 million. This is notably higher than the Wall Street estimate of $215 million.

The company expects its FY2014 sales to be between $1.15 billion and $1.20 billion versus Wall Street's estimate of $1.13 billion

Better start than Facebook, until now ...

Despite a degree of skepticism from some analysts and investors, Twitter shares performed much better than its social media rival.

From Nov. 7, 2013, through Feb. 4, 2014, Twitter rose more than 47 percent.

During Facebook's first three months (May 18, 2012, through Aug. 18, 2012), the world's largest social network lost more than 50 percent of its value.

Facebook has since rebounded, rising more than 119 percent over the last year. But its early days were far more difficult than anyone could have ever imagined.

With Twitter down more than 12 percent in after-hours trading, the company might have to do more than surpass analyst estimates during the next quarter.

Bottom Line

Twitter is a promising social media company that has shown greater growth than what most analysts anticipated. That growth has not been enough to satisfy investor demands, however, which seem to be increasing with every IPO.

More from Benzinga

Feb 5, 2014 9:39PM
What were these investors expecting? Twitter is a click clique for dicks who think they are better than the rest of us. It's literally anti-Americanism- now publicly traded because Wall Street has nothing else going for it.
Feb 6, 2014 10:38AM
Who were all these people who contributed to this stupid valuation in the first place?  They must have been expecting the unexpected but were obviously wrong.
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