Wall Street to Twitter: Where are the users?
Source: Jessica Guynn,
Twitter would be happy to address the subject of sluggish growth in just 140 characters when it reports fourth-quarter earnings on Thursday.
But Wall Street isn't about to let the company off the hook.
Coming off a turbulent first year as a public company, Twitter (TICKER: TWTR) has taken significant steps to change Wall Street's negative perception.
It has launched a flurry of new features such as the ability to edit and share videos and to chat in groups.
This week it said it would begin to sell ads elsewhere on the Web and in mobile apps, inking deals with news-reading app Flipboard and Internet portal Yahoo Japan.
On Wednesday word leaked that Twitter had struck a deal to have tweets shown in Google search results.
And Twitter has shown time and again that it has no trouble making money. In fact, Twitter has doubled revenue every quarter.
Twitter Inc. - Stock Price and Volume | FindTheBest
But for all that momentum, investors remain stubbornly fixated on one measurement of Twitter: User growth.
Bottom line: Wall Street wants Twitter to show that users are joining the service in greater numbers and that they are spending more time there, when it reports results after the close of regular trading.
"While revenue and profitability are important, we believe the focus remains on user growth (arguably the most important metric for the business) and engagement," Shyam Patil, an analyst at Wedbush Securities, wrote in a research report.
Twitter ended the third quarter with 284 million monthly active users. That was an increase of less than 5% from the second quarter.
By and large, analysts don't think Twitter can reverse this slowdown in user growth and they have reduced expectations for the fourth quarter.
They estimate user growth of just 2.8% to 292 million. That would be the smallest quarterly gain in Twitter's history and would put even greater pressure on embattled Chief Executive Dick Costolo.
Costolo has been trying to get Wall Street to think more broadly about its audience, including people who are not logged into the service but see tweets and other content elsewhere on the Web. That has been met with some skepticism.
It's unclear if Twitter's new deal with Google expanding the number of people who see tweets and the potentially the size of Twitter's "logged-out" user base will win over investors. Twitter will make money from a licensing fee in the deal.
"We think the non-logged-on audience cohort may provide some incremental value, but we are still unconvinced it will be transformational," Sanford C. Bernstein analyst Carlos Kirjner wrote in a recent research report. "In the end, the greatest value creation opportunity will remain highly dependent on the user growth trajectory. We think this is where investors will and should focus on Thursday."
Barring a big jump in users, Twitter will have to show that it can milk more money from each user.
Costolo is preparing to take one step that he says will make Twitter more welcoming to new and current users. He told employees in an internal memo obtained by The Verge that Twitter would soon take action against trolls, people who harass and abuse others on the service and drive away users, an issue that has plagued the service for years.
"We suck at dealing with abuse and trolls on the platform and we've sucked at it for years," Costolo wrote in the memo.
The numbers: Analysts are forecasting sales of $453.14 million, up 87% from from $242.7 million in the year-ago quarter. Twitter is expected to narrow its loss to 24 cents from $1.41 a year ago. Excluding certain charges, analysts expect a profit of six cents a share. Wall Street is unlikely to cut Twitter much slack on a miss. It's already valued at 20 times revenue.
CEO under siege: Speculation about Costolo's future has been rampant for months.
Twitter, whose stock is down 40% over the past year, has tried to shut down speculation. Board member Peter Currie expressed his support for Costolo on Twitter last month.
Last week co-founder and board chairman Jack Dorsey praised Costolo and the company in 17 straight tweets.
Still, fewer than half of analysts covering Twitter recommend buying shares.
The knock on Costolo: In addition to disappointing user growth numbers, Costolo has not been clear enough about the company's strategy and he has had a series of high-profile management changes on his watch.
Facebook moment?: SunTrust Robinson & Humphrey analyst Robert Peck thinks the tide of negative sentiment may soon turn. "We believe this could be the beginning of what we deemed Twitter's 'Facebook Moment'," he wrote in a research report.
With new products and ads extending beyond Twitter, he thinks the company can turn the corner on how it's perceived by Wall Street, just as Facebook did "in the spring of 2013, where some investors believed that Facebook would never be able to monetize mobile and the stock sat around $20."
Pivotal Research Group analyst Brian Wieser is also bullish on Twitter. He recently raised his price target to $50 price from $42. "We think there is increasing reason for positivity around the company's ability to monetize its platform," he wrote in a research report.
| }
|