Twitter Falls on Tepid Sales Forecast and Lackluster User Growth
(Bloomberg) -- Twitter Inc. fell the most in seven weeks after giving a lackluster first-quarter sales forecast and reporting tepid user growth, suggesting that changes to improve the social-media service hasn’t yet attracted a much wider audience.
Revenue will be $715 million to $775 million in the period, the San Francisco-based company said Thursday in a statement. Analysts, on average, projected $766.1 million, according to data compiled by Bloomberg. The company also reported a decline in monthly active users, though it began reporting daily active users and showed growth in that metric.
Twitter has been ramping up efforts to reduce abuse on its platform and root out fake accounts and election malfeasance, issues that have crimped user growth in a competitive digital-advertising market. The company’s share of the lucrative market is expected to decline this year as rivals like Facebook Inc. and Alphabet Inc.’s Google boost their dominance, according to EMarketer.
Daily users rose 9 percent in the fourth quarter to 126 million, a measurement that investors have been asking for as a better gauge of the service’s popularity. The growth rate was also 9 percent in the third quarter and had jumped 12 percent in the fourth quarter of 2017, the company said.
Shares declined 9.8 percent to $30.80 at the close in New York, the biggest single-day decline since Dec. 20. The company’s stock had increased 35 percent in the past 12 months before the earnings report, as investors grew optimistic about Twitter’s ability to attract more advertisers to the service.
“My suspicion is that the number got to a size where they were willing to disclose it, meaning it didn’t make them look too small compared to their peers,” said Richard Greenfield, analyst at BTIG LLC, about the switch to report daily active users. “They have the confidence to be able to grow that number for quite a while.”
Monthly active users averaged 321 million, decreasing by 9 million from the same period a year earlier and down 5 million from the third quarter. Twitter told investors last quarter that the metric would likely continue to drop as the company cleans up the platform to remove spam and suspicious accounts. The company said it would no longer report the number of monthly active users after the first quarter.
The numbers seem to indicate that Twitter’s total audience isn’t growing, though it is persuading existing users to come back to the platform more often. In 2017, the U.S. Securities and Exchange Commission asked the company why it wouldn’t disclose the number of daily active users. Twitter argued at the time that reporting the growth percentage was more important than the actual number, and the numbers would invite unfair comparisons.
Twitter also specified that its calculation of daily active users captures “monetizeable” users, which aren’t comparable to current participation numbers from other social-media companies that include people who don’t see advertisements. For comparison, Snap Inc. said 186 million people used the Snapchat app daily in the fourth quarter. On Facebook, daily active users averaged 1.52 billion in December.
“Our priority as a company is really to drive value for people on Twitter every day,” Ned Segal, chief financial officer, said in an interview on Bloomberg Television. “The best way to measure that is by monetizeable daily active users. That’s the metric we’ve been looking at internally to measure our success for some time.”
To boost engagement, Twitter has simplified the user experience and made it easier for people to find relevant content and accounts to follow. The company is also experimenting with changes that would make Twitter feel more like a chat service, in an effort to make conversations more fluid.
“There is a lot we can do within the product that can create a much better experience for users,” Chief Executive Officer Jack Dorsey said on a call with analysts. “We do believe this is a long-term growth factor for us. People come to Twitter not only to see what’s happening, but what people think about what’s happening.”
Twitter has said it identified much less manipulation on its service during the 2018 U.S. midterm elections from bad-faith actors located abroad than two years earlier during the presidential campaign. However, the company disclosed in a recent report that it found operations to mislead users on the platform that were potentially connected to sources in Iran, Venezuela and Russia.
Despite its lackluster user growth, Twitter’s financial health improved after years of losses. The company in 2018 marked its first full year of profitability under generally accepted accounted principles.
Fourth-quarter sales increased 24 percent to $908.8 million, beating analysts’ average estimate of $867.1 million. Profit, excluding some costs, was 31 cents a share, compared with the average estimate of 25 cents. The company said costs grew primarily because of hiring and expenses related to video content and infrastructure.
The company increased global headcount by 16 percent in 2018, ending the year with more than 3,900 employees.
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