SAN FRANCISCO — As Twitter
has struggled to attract new users, the one bright spot has been its
ability to wring more and more advertising dollars from marketing
messages shown to the people on its service.
Now,
under intensifying competition from companies like Facebook, its
once-blistering ad growth is faltering — and so is Twitter’s stock.
Twitter posted weaker-than-expected financial results for the first quarter on Tuesday and told investors to reduce their expectations for the rest of the year.
The quarterly report, which was supposed to be published after the stock market closed, was obtained early and posted on Twitter
by the financial analytics firm Selerity. The release sent Twitter
shares plunging. Trading was briefly halted so the company could
disseminate its results. That steepened the drop, and the stock ended
the day down about 18 percent.
Twitter’s
revenue grew 74 percent in the quarter, but that was less than the 97
percent growth seen in the fourth quarter and below the company’s own
forecasts. Executives attributed the slowdown to a transition to a new
advertising model that priced certain ads based on the result, such as
whether the viewer downloaded an app, instead of whether the person
simply clicked on it.
Wall Street’s Reaction to Twitter’s Earnings
Analysts
said, however, that the shortfall suggested that the real-time network
might be less useful than competitors for what are called
direct-response ads.
“Do
people want to leave what they are doing on Twitter and do something
else like buy something?” said Debra Aho Williamson, an analyst at the
research firm eMarketer. “Direct-response advertisers haven’t figured
out the best way to use Twitter, and Twitter hasn’t figured out the best
way to market to them.”
The
quarterly results may renew calls for the resignation of Twitter’s
chief executive, Dick Costolo, who has been under fire from some
investors ever since the company’s initial public offering in the fall
of 2013.
“Management
will again have to address credibility concerns,” Mark Mahaney, an
analyst with RBC Capital Markets, wrote in a note to investors shortly
after the results came out.
Investors
had counted on Twitter’s strong advertising performance to offset the
trouble that the service has had in attracting new users.
“User
growth doesn’t appear to be notably improving, and now monetization is
failing to live up to expectations,” said Richard Greenfield, an analyst
with BTIG Research. “That’s why the stock is selling off so hard. The
question is, How much of this is Twitter’s own missteps versus how much
of this is peers such as Facebook, Instagram and Snapchat eating into
their advertising?”
Twitter
said that 302 million people used its service at least once a month
during the first quarter. That is up from 288 million in December and in
line with recent trends. But the figure failed to impress investors,
who have been eager to see results from recent changes Twitter has made to help newcomers better understand how to use its service.
Anthony
Noto, Twitter’s chief financial officer, said that user growth in April
was “off to a slow start.” But the company plans to start adding to its
count people who access the service only via text message, which would
have added six million users to the first-quarter total.
Twitter’s
revenue, most of which derives from advertising, came in at $436
million in the first quarter, up from $250 million in the same quarter a
year ago. That was well below the $457 million that Wall Street
analysts had expected, according to estimates collected by S&P
Capital IQ.
“We
are increasingly concerned that Twitter’s lack of real-time commercial
intent (à la Google) or detailed, authenticated profiles (à la Facebook)
will at some point materially limit TWTR’s ad growth potential,” Mr.
Mahaney wrote. TWTR is the company’s stock symbol.
The
company also continued to lose money in the first quarter: $162
million, or 25 cents a share. Excluding stock-based compensation and
certain other expenses, however, the company reported a profit of $46.5
million, or 7 cents a share. On that basis, Wall Street had expected
Twitter to earn 4 cents a share.
In
a conference call with analysts, Mr. Costolo said that it was too early
for the new product initiatives to generate meaningful results. “These
are Version 1 products,” he said. “We’re going to iterate on them
frequently.”
Mr.
Costolo said that since the company began allowing users to shoot and
post video directly from the Twitter app in January, “we’ve seen
orders-of-magnitude increases in the volume of native mobile video
shared.”
For
the year, Twitter told investors to expect revenue of $2.17 billion to
$2.27 billion. That is significantly lower than the $2.38 billion that
Wall Street has been projecting.
Twitter
has built itself into a global platform for public conversation
conducted in 140-character snippets known as tweets. The company has
traditionally been strong in mobile advertising, since its ads look
almost exactly like other text, photo and video posts in its feed and
they easily adapt to fit the smaller displays of cellphones.
Such ads are growing in popularity with marketers, but Facebook, Yahoo and many media sites also offer them.
To make its ads easier to buy, Twitter announced a new advertising partnership
with Google on Tuesday. Later this year, brands and ad agencies using
Google’s popular DoubleClick advertising platform will be able to buy
ads on Twitter just as they do on other sites. Marketers will also be
able to use Google’s analytics to measure the performance of Twitter
ads.
The
deal builds on an earlier deal in which Twitter agreed to give Google
real-time access to the half-billion tweets posted every day. Beginning
in May, Google intends to display those tweets as part of its search
results, giving Google searches an up-to-the-moment freshness they now
lack.
Both
deals reflect the determination of Mr. Costolo and Mr. Noto, his
financial chief, to extend the reach of Twitter beyond its core
platform.
Twitter also announced
that it had acquired TellApart, an advertising technology company that
specializes in direct-response marketing, which could help its
performance with those ads.
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