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Feb 7, 2019

Twitter slides as sales forecast falls short amid tepid user growth

Twitter shares fall amid weak outlook for 2019


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Twitter Inc. (TWTR.N) gave a lackluster first-quarter sales forecast and reported tepid user growth, suggesting that changes to improve the social-media platform haven’t yet attracted a much wider audience.

Revenue will be US$715 million to US$775 million in the period, the San Francisco-based company said Thursday in a statement. Analysts, on average, projected US$766.1 million, according to data compiled by Bloomberg. The social media company also reported a decline in monthly active users, though it began reporting daily active users and showed growth in that metric. The shares slid 8.9 per cent to US$31.13 at 9:48 a.m.

Twitter has been ramping up efforts to reduce abuse on its platform and root out fake accounts and election malfeasance, issues that have crimped user growth in a competitive digital-advertising market. The company’s share of the lucrative market is expected to decline this year as rivals like Facebook Inc. and Alphabet Inc.’s Google boost their dominance, according to EMarketer.

“There is a lot we can do within the product that can create a much better experience for users on the service,” Chief Executive Officer Jack Dorsey said on a call with analysts. “We do believe this is a long term growth factor for us. People come to Twitter not only to see what’s happening, but what people think about what’s happening.”

Daily users rose 9 per cent in the fourth quarter to 126 million, a measurement that investors have been asking for as a better gauge of the service’s popularity. The growth rate was also 9 per cent in the third quarter and had jumped 12 per cent in the fourth quarter of 2017, the company said.

Monthly active users averaged 321 million, decreasing by 9 million from the same period a year earlier and down 5 million from the third quarter. Twitter told investors last quarter that the metric would likely continue to drop as the company cleans up the platform to remove spam and suspicious accounts. The company said it would no longer report the number of monthly active users after the first quarter.

The numbers seem to indicate that Twitter’s overall audience isn’t growing, though it is persuading existing users to come back to the platform more often.

Twitter also specified that its calculation of daily active users captures “monetizeable” users, which aren’t comparable to current participation numbers from other social-media companies that include people who don’t see advertisements. For comparison, Snap Inc. said 186 million people used the Snapchat app daily in the fourth quarter. On Facebook, daily active users averaged 1.52 billion in December.

To boost engagement, Twitter has simplified the user experience and made it easier for people to find relevant content and accounts to follow. The company is also experimenting with changes that would make Twitter feel more like a chat service, in an effort to make conversations more fluid.

Twitter has said it identified much less manipulation on its service during the 2018 U.S. midterm elections from bad-faith actors located abroad than two years earlier during the presidential campaign. However, the company disclosed in a recent report that it found operations to mislead users on the platform that were potentially connected to sources in Iran, Venezuela and Russia.

Despite its lackluster user growth, Twitter’s financial health improved after years of losses. The company in 2018 marked its first full year of profitability under generally accepted accounted principles. The company’s shares increased 35 per cent in the past 12 months through Wednesday’s close, as investors grew optimistic about Twitter’s ability to attract more advertisers to the service, which has benefited from new formats like video.

Fourth-quarter sales increased 24 per cent to $908.8 million, beating analysts’ average estimate of US$867.1 million. Profit, excluding some costs, was 31 cents a share, compared with the average estimate of 25 cents. The company said costs grew primarily because of hiring and expenses related to video content and infrastructure. 

The company increased global headcount by 16 per cent in 2018, ending the year with more than 3,900 employees.

Bloomberg LP, the parent company of Bloomberg News, produces TicToc, a global breaking news service for Twitter’s site.