Twitter on Feb. 5 posted its first earnings report since it went public Nov. 7, 2013, and the results were mixed, to say the least. While the financials are improving, growth in the company's user base has slowed, to the consternation of investors.
While it is still operating in the red overall, in the fourth quarter of 2013, the San Francisco-based messaging service beat Wall Street estimates by reporting revenue of $242.7 million, a substantial increase from $112.2 million from the previous year's fourth quarter. Analysts polled by Bloomberg had projected $218.1 million.
Twitter is still working to get its cost of business under control. Total spending soared to $752 million, up more than six times over the $121 million it spent in the fourth quarter of 2012. The net loss grew to $511.5 million from $8.7 million a year earlier; it was more than double analysts' projections of $253.5 million. A major factor here was a $521 million stock-based compensation expense.
About 75 percent of advertising revenue came from mobile devices, Twitter said.
The 7-year-old company said its monthly active users totaled 241 million in the fourth quarter, up 30 percent from 185 million a year earlier, but the user growth is now 25 percent slower than the 39 percent growth rate it experienced in the previous three months.
Application usage also slipped, with 148 billion views of Twitter timelines compared to 159 billion views in the third quarter of 2013.
The usage figures were the major reason why the stock took a 19 percent hit Feb. 5, analysts said.
As recently as late 2012, Twitter was adding new users at about 60 percent a year, and views of tweet streams were higher.
Thus, the pressure is on the company to bolster its usership substantially in order to justify its lofty $34.7 billion market cap, which at the moment is higher than popular U.S. retailer Target.
CEO and co-founder Dick Costolo said Feb. 5 on the earnings call to analysts that the company has a plan to increase the number of users and engagement by making the site easier to use.
"Up until last year, our growth has been viral and organic. Growth was something that happened to us. It will be a combination of changes introduced over the course of the year that will start to change the slope of the growth curve," Costolo said.
Twitter's stock price fell 18 percent to $54.16 in after-hours trading Feb. 5 after closing at $66.