Twitter's Stock Takes Beating Over Slow User Growth

Despite a huge growth in 1st Quarter revenue, Twitter's stock dropped 10 percent Tuesday.
Posted at 11:52 PM, Apr 29, 2014

Despite double-digit growth in revenue for the first quarter of 2014, Twitter's user base didn't do much to impress investors and its stock paid for it with a sizeable blow – down 10 percent Tuesday.

Since its IPO last November, investors have kept a watchful eye on the social network's expansion. And while both revenue and users have grown, the latter fell short of projections. Here's a quick breakdown:

The Wall Street Journal reports in the first quarter of 2013, Twitter's user base grew by 3.8 percent. The following year it grew 5.8 percent, to 255 million users, but analysts had expected 6.6 percent growth.

And, in the nickel and dime community of Wall Street, that difference is a big enough deal to turn some investors off of the company.

An analyst for Topeka Capital told The Journal“Financially the business is performing strongly. The revenue, advertising growth, and [earnings] numbers were solid. ... Unfortunately, the Street was demanding more out of Twitter for user growth, which Twitter did not deliver.”

In the earnings call, Twitter CEO Dick Costolo acknowledged the shortfall and said growth is a top priority this year. Forbes quotes him saying, “We are doubling down in 2014 to accelerate the growth of our core user base. ... We simply need to make Twitter a better Twitter." (Via Flickr / JD Lasica)

How does Costolo plan on doing that? Forbes goes on to list the changes: make signing up for the service quick and painless, keep the photos and videos coming, make conversations easier and more inviting and develop better organization.

Twitter's report says it has about 255 million active users each month. So just how many would it take to make investors happy?

RBC Capital Markets analyst Mark Mahaney tells USA Today for that answer, just look to Facebook.

"Facebook is well over 1.2 billion or 1.3 billion users, with growth in the mid-teens year-over year. [Twitter] keeps accelerating, and the number of users they have is growing 25%, year over year ... But I think there were people, including within the company, who thought [Twitter] could have half a billion users at some point."

Most of Twitter's revenue growth came from advertising, which has more than doubled in the past year.