Twitter stock drops 13% on signs of slowing growth

Twitter's third-quarter revenue outpaced expectations, but investors concerned about user growth and holiday-quarter revenue clipped the company's stock price late Monday.

The San Francisco-based company has been trying to increase its user base amid concerns that it doesn't hold mass appeal in the way that the much-larger Facebook does. Its user base grew 23 per cent to 284 million monthly active users in the three months that ended in September, which Forrester Research analyst Nate Elliott said was "better than nothing."

"It's hard to be ecstatic about those numbers when it's still a user base under 300 million people," Elliott said. "It's a social property less than a quarter (of the) size of Facebook."

To appeal to more people, Twitter has tried to make it easier to sign up for and use its service, and it got a boost this summer from promoting itself as a place to follow the World Cup. In July, its stock spiked 30 per cent on the day it reported better-than-expected results and a 24 per cent increase in its monthly user base.

Slowing growth

This time, though, the growth apparently wasn't enough. Coupled with lacklustrerevenue guidance for the current period, shares were trading hands down 13 per cent lower in premarket trading Tuesday from where they closed on Monday, at $48.56 a share.

To attract more users and to get them to stay on Twitter longer, the company's main tasks are innovation and giving people new reasons to come back every day, said Elliott.

Recent changes, such as an update on what user profiles look like, shows Twitter is moving in the right direction. But, Elliott pointed out, "the basic experience on Twitter is identical to the basic experience on Twitter 9 years ago." Facebook, even with some notable missteps, has been able to stay ahead by regularly shifting its loofk andeel to get more people to join its site and stick around longer once they do.

Facebook dwarfs Twitter when it comes to users as well as advertising revenue. According to research firm eMarketer, Twitter accounted for half a per cent of worldwide digital ad revenue in 2013. This is expected to increase to just under 1 per cent this year, as digital ad spending grows to $140.7 billion. In comparison, Facebook is expected to increase its share of the market from 5.8 per cent in 2013 to 8 per cent this year, according to eMarketer.

Twitter Inc. posted a loss of $175 million, or 29 cents per share, in the latest quarter. That compares with a loss of $64.6 million, or 48 cents per share, a year earlier when it was still a private company. Adjusted earnings were 1 cent a share, matching expectations.

Revenue more than doubled to $361 million and beat the $351.5 million expected by analysts, according to FactSet. More than 85 percent of Twitter's total ad revenue came from mobile advertising, and about 80 percent of the its monthly users accessed it on mobile devices.

Twitter went public last November at a price of $26 per share. The stock peaked in December at $74.73 and then declined sharply. On Monday, it closed at $48.56, then fell 7.9 per cent to $44.77 after the results came out.