Twitter stock got crushed Wednesday, plummeting nearly 15 percent after the company offered up a dour outlook as it reported otherwise solid second quarter earnings late Tuesday.
What happened? Twitter’s earnings of 7 cents a share topped analysts’ projections of 4 cents, and revenue climbed 61 percent to $502.4 million, also ahead of Wall Street’s expectations. (Using generally accepted accounting principles, the company actually posted a loss of $137 million, or 21 cents a share.)
Of more concern to Wall Street, Twitter’s monthly active users grew by less than 1 percent, and the company warned that its efforts to overhaul its service to generate faster growth and build mainstream user appeal would take a “considerable period of time.”
“This is unacceptable and we’re not happy about it,” Twitter Cofounder and Interim CEO Jack Dorsey said on a call with analysts. Investors clearly felt the same way.
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What does it mean? Twitter isn’t growing fast enough. It is much smaller than Facebook, with 316 million monthly users to Facebook’s 1.4 billion, and the plateauing of its user base has some analysts questioning whether it can get much larger.
“One issue the micro-blogging site is trying to solve is the fact that users find it too difficult to use,” Estimize Research analysts wrote before Twitter’s results came out. “Twitter hopes recently introduced features such as ‘while you were away,’ Instant Timelines and group Direct Messaging will help to alleviate this problem.”
Those new features haven’t helped much yet, and to prove naysayers wrong, the company is going to have to find other ways to attract users. Dorsey says the “mass market” still needs to be convinced about Twitter’s fundamental usefulness and appeal.
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What’s next for Twitter? On the earnings call, Dorsey outlined three key areas the company needs to focus on: more disciplined execution, a simplified service, and a better strategy to communicate Twitter’s value to new users.
Critics counter that Twitter has known about these issues for a while but has failed to act to fix them. Others say that the company needs a complete overhaul that would have it expand beyond one main product. Meanwhile, grim Wall Street analysts are lowering their price targets, and the disappointing growth picture will ramp up pressure on the company as it searches for a new CEO. Speculation about Twitter being acquired is likely to only grow louder.
