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Twitter fails to impress despite a better than expected quarter

Twitter posted improved second quarter revenue and income, but leadership and investors unhappy with slow audience growth

Twitter has failed to impress investors despite posting higher than expected second quarter revenue of $502m, up 61% compared with 2014, and net income of $49m, up from $15m compared with 2014.

The company said net loss was $137m for the second quarter of 2015, compared with $145m in the same period in 2014.

Although Twitter shares were initially up 10% in after-hours trading, the stock quickly gave up its early gains and was later trading down 6%, reports The Verge.

Jack Dorsey, Twitter co-founder and interim chief executive, highlighted the slow growth of membership as the heart of the problem, with gains of only two million core users in the quarter. This is despite the average number of monthly active users being 316 million, up 15% compared with the same quarter in 2014.

“Our Q2 results show good progress in monetisation, but we are not satisfied with our growth in audience,” he said.

Analysts said Twitter’s slow growth in users worries investors, who are focused on the company's growth potential.

“We must improve in three key areas: ensure more disciplined execution, simplify our service to deliver Twitter's value faster, and better communicate that value,” said Dorsey.

Analysts said investor confidence may have also been shaken by the announcement of the departure of two key members of Twitter’s project management team.

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In recent months, the vice-president of product management Christian Oestline announced he was leaving for YouTube, while the former director for product management Todd Jackson said he was going to Dropbox.

Twitter is also in the midst of a management change after Dick Costolo announced in June 2015 that he was stepping down as chief executive

However, Dorsey – who stepped in as interim CEO – was upbeat on an earnings call with analysts, saying if Twitter can change the way it executes, it will become the “best place for people to share their ideas”.

According to chief financial officer Anthony Noto, Twitter has a 95% brand awareness, but only 30% penetration in most developed markets. This means Twitter is only reaching “technology enthusiasts and early adopters” and has failed to transition into the mass market, he said. 

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When Dorsey took over as interim CEO in June, they were saying that they had no plans to change their strategy, yet their unhappy with slow audience growth. What were they expecting?
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