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Twitter shares plunge 24 per cent (#ouch)

These are stories Report on Business is following Thursday, Feb. 6, 2014.

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Twitter tumbles
Shares of Twitter Inc. plunged today, slumping 24.2 per cent, after an earnings report late yesterday that showed a slowing increase in the number of people using the micro-blogging service.

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After markets closed yesterday, Twitter posted a fourth-quarter loss of $511.5-million, or $1.41 a share, compared with a loss of $8.7-million or 7 cents a year earlier.

As The Globe and Mail's Tim Shufelt reports, revenue swelled 116 per cent to $243-million, and the number of average monthly active users rose 30 per cent to 241 million by the end of last year.

Twitter also forecast first-quarter revenue of $230-million to $240-million, and annual revenue of $1.15-billion to $1.2-billion.

Twitter chief Dick Costolo heralded the results as "our strongest financial quarter to date," but investors are troubled by, among other things, the slowdown in the growth of its user base.

Twitter shares lost $15.94 to close at $50.03. They remain well above the price at which it went public - $26 - though well below the peak late last year of almost $75.

Here's what some analysts are saying:

"Higher revenues but continued loss-making, together with concerns that Twitter isn't attracting new users as expected, did put a dampener on its results. The share-price premium that has been constantly highlighted recently will come under even more intense scrutiny now. And the analyst community now has a little more to go on, so we expect changes in ratings to continue the  stock's volatile price action." Will Hedden, IG

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"The actual numbers are strong in terms of fundamentals. People had really run this thing up expecting an absolute blow-out. Guidance looks strong, just not as strong as some people had hoped." Ben Schachter, Macquarie, reported by Reuters

"Twitter is becoming a more important source of referrals for retailers. They are not only sending more traffic, but it's higher quality." Tamara Gaffney, Adobe Digital Index, reported by The New York Times

"Twitter needs to answer the question about whether it can ever become a mass-market product, or whether it's more destined to be a niche for news junkies. Depending on how fast it's growing, that's what we're willing to pay for it." Robert Peck, SunTrust Robinson Humphrey Inc., reported by Bloomberg

"This is kind of an example of a very new company that isn't really well understood by the Street so people don't get a sense of how the revenue builds up … It is incumbent on the company to start doing things to make the service more mainstreamable." Mark Mahaney, Royal Bank of Canada, reported by The Wall Street Journal

"What this report will do is it will question how mainstream is Twitter as a platform. Both in the U.S. and internationally, the monthly active user base did not grow as fast as people thought, and that has an impact on the number of timeline views." Arvind Bhatia, Sterne, Agee & Leach, reported by Reuters

Heenan Blaikie to close
Canada's lawyers woke up this morning to learn that one of their own has collapsed.

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Partners of Heenan Blaikie LLP, a storied law firm that has boasted several political power players over its four-decade history, voted late yesterday to dissolve.

Heenan Blaikie's lawyers once numbered some 500, though an exodus of late led to its demise, and the biggest collapse of a law firm ever in Canada.

A core group of lawyers are in merger talks with DLA Piper of the U.S., while a group of lawyers from Heenan Blaikie's Vancouver office are splitting away to set up a new firm.

BCE boosts payout
BCE Inc. hiked its dividend today as it posted a $495-million fourth-quarter profit off 26 per cent from a year earlier.

The Montreal-based communications giant said net earnings attributable to common shareholders amounted to 64 cents a common share, The Globe and Mail's Rita Trichur reports.

That compared to a profit of $666-million or 86 cents, the decline attributed to a non-cash gain in the 2012 period resulting from a spectrum transfer from its wireless joint-venture Inukshuk.

Adjusted earnings per share amounted 70 cents versus 60 cents.

Thirst quencher
My diet consists largely of coffee and Coke. (That's a capital C, I'm not the mayor.)

So of course I'm intrigued by Coca-Cola Co.'s deal to take a 10-per-cent stake in Green Mountain Coffee Roasters Inc. and help roll out a Keurig machine for cold drinks.

Green Mountain stock surged today, and Coke shares gained, as well.

But what got me was the idea of making Coke at my desk.

Coke and Green Mountain, which makes the one-drink Keurig coffee system, will be taking on the likes of SodaStream International Ltd., the Israeli company that put Scarlett Johansson in the spotlight and whose shares plunged yesterday.

Coke is paying $1.25-billion (U.S.) for its 10 per cent and a 10-year deal to help Green Mountain roll out its Keurig Cold machine.

It would also use those pod thingies, but for cold drinks. Together, they'll sell what they call the Coke-branded "single-serve, pod-based cold beverages."

Coke chief Muhtar Kent says he's not troubled by the idea that Keurig Cold could erode sales of canned and bottled pop, saying it's not a "zero-sum game."

And, after all, there's still me.

I drink coffee by the pot,  but Coke by the litre. Or two.

Central banks in spotlight
The European Central Bank made no change to policy today, despite the backdrop in the euro zone. The Bank of England also changed nothing.

There had been some speculation that the ECB would take some action today, given the fear of deflation and a group of economies in the euro zone still trying to find their feet.

"Euro zone unemployment is 12 per cent; inflation is 0.7 per cent," said Justin Wolfers, a well-known U.S. economist.

"So the ECB … kept rates unchanged. Genius."

That doesn't necessarily mean it's on hold for long, however. And all eyes are now on the next meeting in early March.

"As long as disinflationary pressures continue we expect the ECB to act at that time by either ending the sterilization of the [securities market program] program or by cutting interest rates, potentially shifting to negative rates," said chief currency strategist Camilla Sutton of Bank of Nova Scotia.

"Lower rates, and in particular negative rates, would send a strong signal, with rates literally reaching the zero lower bound and therefore opening the door to speculation over the potential for the ECB to enter into [quantitative easing]."

And then there's the Bank of Ghana, which hiked its benchmark rate by two full percentage points to 18 per cent.

Trade gap widens
Canada's trade deficit is swelling as import prices rise.

The trade gap with the world widened in December to $1.7-billion from $1.5-billion in November, which, in turn, was revised up sharply, Statistics Canada said today.

Exports grew by 0.9 per cent, outpaced by imports at 1.2 per cent, The Globe and Mail's Barrie McKenna reports.

But, the federal agency noted, import prices climbed by 1.6 per cent while volumes fell 0.4 per cent.

Export volumes, in turn, rose 0.8 per cent, with prices up 0.1 per cent.

"The obvious question is, why such weak results when all the talk is about how the flagging Canadian dollar will help exporters?" said senior economist Robert Kavcic of BMO Nesbitt Burns.

"Keep in mind that the currency was still holding in around 94 U.S. cents in December and, more importantly, it takes time for a sudden drop in the exchange rate to work its way through the economy (even as long as a year or two if we're talking about the impact on GDP growth)," he said in a research note.

"That said, we are still expecting the combination of the weaker loonie (sitting at 90 U.S. cents after this report) and firmer U.S. demand to help net exports add modestly to growth through 2014."

Exports to Canada's main trading partner, the United States, increased by 1.2 per cent, pumping up the Canadian surplus with America to $2.4-billion.

The Canadian deficit with other countries, though, grew to $4.5-billion from $4-billion.

And according to the U.S. Commerce Department today, America's trade deficit climbed in December to $38.7-billion (U.S.) from $34.6-billion.

Bombardier strikes deal
Bombardier Inc. has won a big new contract in London, worth some $1.6-billion.

The deal will see the Canadian train and plane maker produce and maintain 65 new trains and a depot for the Crossrail project.

The work will be done at the Bombardier plant in Derby, in northern Britain.

Shoppers profit slips
In what is probably its last quarterly results as a separate public company, Shoppers Drug Mart Corp. said its fourth quarter profit fell to $169.4-million from $174.7-million a year earlier, partly because of expenses tied to its deal to be acquired by Loblaw Cos. Ltd., The Globe and Mail's Marina Strauss reports.

The country's largest drug-store retailer, which expects that Loblaw's $12.4-billion agreement to buy it will close by the end of March, said its fourth-quarter profit per share stayed steady at 85 cents, while sales rose to  $2.75-billion from $2.72-billion.

Excluding the effect of the $3-million transaction-related pre-tax costs, Shoppers' fourth-quarter profit was $172-million or 86 cents a share, which was what analysts polled by Thomson Reuters had expected.

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