Twitter shares down by 10% despite strong quarter

Twitter’s share price fell by 10% in after-hours trade, despite third-quarter revenues of $361m, up by 114% from 2013

Twitter’s share price fell by 10% in after-hours trade, despite reporting third-quarter revenues of $361m, up by 114% compared with the same period in 2013.

The microblogging service also reported net income of $7m, but investors were disappointed that only 13 million users were added in the quarter to bring the total number of monthly active users to 284 million.

Analysts had predicted growth would be between 14 million and 17 million users, according to the Guardian.

Although the number of users was up by 23% compared with the same period in 2013, it is just a 4.8% increase from the previous quarter and below the 6.3% second-quarter growth, the paper said.

In addition to the slowing growth rate, investors were unhappy Twitter remains unprofitable, with a net loss of $175m for the quarter, up from $64.6m in 2013.  

Investors were also discouraged by Twitter’s outlook for the fourth quarter, with revenue projected to be in the range of $440m to $450m, with the midpoint of $445m falling below analysts’ estimates of $448m.

In an attempt to spur user growth, Twitter used the quarter to update its Apple iPhone app, add new options to its Vine video service and launch a service for US National Football League (NFL) fans.

Just ahead of the quarterly results announcement, Twitter also held its first developers’ conference in four years to encourage developers to build apps and services that integrate with Twitter.

Twitter used its Flight developer conference in San Francisco to announce a password replacement service called Digits, as part of its new mobile development platform named Fabric.

Twitter CEO Dick Costolo said the results represent another strong quarter for the social network.

“I’m confident in our ability to build the largest daily audience in the world – over time – by strengthening the core, reducing barriers to consumption and building new apps and services,” he said.

In a conference call with analysts, Costolo said he was happy with the strategy and the quality of what the company was doing, but given the scale of the company’s ambitions to reach everyone in the world, it was more critical than ever for Twitter to pick up the pace.

Mobile advertising market

Twitter appears set to take advantage of the fast-growing mobile advertising market, with mobile advertising accounting for 85% of total advertising for the quarter and 80% of users on mobile devices.

During the third quarter of 2014, Twitter launched a number of advertiser tools, including objective-based campaigns, reports and pricing to make it easier for advertisers to create and optimise successful marketing campaigns, and pay only for the actions aligned with their marketing objectives.

Costolo told analysts he hoped increasing advertising on the site would help the company turn a profit, conceding the business was not performing as well as its competitors yet.

According to eMarketer, Twitter accounted for 0.5% of global digital ad revenues in 2013, and that figure is expected to grow to 0.8% in 2014.

However, rival social networking firm Facebook is expected to increase its share of the worldwide digital advertising market from 5.8% in 2013 to 8% in 2014.

Forrester Research analyst Nate Elliott attributed the sharp share price fall to the high expectations for the firm, and said Twitter had failed to keep up with Facebook.

"Their user growth is mildly encouraging, but I want to see better. Users is their key metric – they need to get people using the site everyday. Facebook is constantly giving people new reasons to come back to the site, Twitter needs to do more of that," he told the BBC.

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