Twitter Inc. is bringing in more revenue but finding it hard to deliver on its promise to become a technology company with mass appeal.
In its first-quarter results announced Tuesday, Twitter reported that its revenue jumped to $250-million (U.S.), more than double the figure from the same period a year ago.
More crucial to investors, however, is how quickly the company is expanding its user base. Over the first quarter, the number of active users grew to 255 million, expanding 5.8 per cent.
That’s an improvement over the growth rate in the previous quarter, but it’s still not fast enough to please investors. On an annual basis, the growth rate in active users in the first quarter slowed to 25 per cent, down from 30 per cent in the prior quarter.
Twitter’s shares dropped more than 10 per cent in after-hours trading, touching their lowest levels since the company’s shares began trading in November of last year.
The company remains unprofitable and reported a loss of 23 cents a share in the quarter, compared to 21 cents a share a year ago.
Tuesday’s announcement is only the second time that Twitter has reported earnings as a publicly traded company. Its initial foray back in February also disappointed investors and sent the stock price plunging 20 per cent overnight.
Twitter is in the cross hairs of a conundrum: how to live up to sky-high expectations. Chief executive Dick Costolo once pledged to bring the micro-blogging service to every person on the planet. Analysts viewed Twitter as a kind of Facebook-in-waiting, a platform that would reach hundreds of millions of people across the globe with the advertising revenues to match.
While Twitter has gained a devoted following, experts are anxious that it may fail to turn into a truly broad-based platform. Facebook now has 1.28 billion active monthly users; at Twitter’s current annual rate of growth, it would take more than seven years to match that figure.
Twitter knows that strengthening the pace of user growth is critical. To attract new users, the company has tweaked its site to make it more appealing and adjusted the sign-up process to make it more hassle-free. Some of the changes make the user experience more akin to what people see on Facebook.
Twitter has also rolled out a suite of new tools to increase its allure among advertisers. In a sign of strength, it raised its forecast for annual revenue, projecting the company could bring in sales of up to $1.25-billion for 2014.
The company is putting particular emphasis on selling mobile advertising as it seeks to bolster its bottom line. “To be very clear, there are few other companies with this kind of reach and we see a strategic opportunity here to assist marketers in making the shift from desktop to mobile,” Mr. Costolo told the conference call following release of the earnings results.
Some in the advertising and media community remain skeptical. An executive at NBCUniversal recently told the Financial Times that one of the company’s key sales pitches – that engaging with users on Twitter can help boost ratings for television shows – wasn’t true. “I am saying the emperor wears no clothes,” said Alan Wurtzel, the paper reported.
Another measure of user engagement that is closely watched by advertisers delivered a mixed picture. The number of “timeline views” – how many times a user refreshes a page – grew 15 per cent year-over-year in the first quarter. That rate of growth, however, is down from 26 per cent year-over-year in the final quarter of 2013.