Despite growth, Twitter still disappoints

Twitter still hasn't figured out how to monetize its own popularity and reach

Twitter iOS App
Credit: Martyn Williams

Twitter, industry analysts generally agree, is a company doing really cool things, but it continues to disappoint investors.

Tuesday, when Twitter reported its first-quarter results, was no exception. The company reported user growth, adding 5 million users for a total of 310 million, and posted $595 million in revenue.

Twitter's good news was quickly overshadowed by the fact that the company didn't meet analysts' expectations of nearly $608 million in revenue for the quarter.

The social network also lowered revenue expectations for the second quarter, forecasting between $590 million and $610 million, which is well below Wall Street estimates of $677 million.

Twitter's stock price quickly dropped 15 percent following the news. According to CNBC, the company's stock has fallen more than 70 percent in the past year.

"Twitter is a user favorite, but its stock price continues to disappoint," said Jeff Kagan, an independent industry analyst. "Twitter is a great company and a great tool for users. I would say Twitter is like a train with one wheel off the track. The whole train has not crashed, but it can't grow freely yet either."

Dan Olds, an analyst with The Gabriel Consulting Group, noted that Twitter is taking some hard knocks considering that its numbers weren't in the ditch.

"Investors have pretty big expectations for Twitter, and when they're not met, the stock is punished, as we've just seen," Olds said. "Revenue was up 36% year over year and profits doubled from 7 cents per share to 15 cents per share. Not too shabby at all, but the market expected more, so punishment needs to be dealt out. I think that while Twitter missed this quarter, it's still a pretty good performance and that they're on the right track."

While Twitter isn't losing users, the site also isn't attracting hordes of new users, and current users aren't posting to Twitter more often, Olds said.

"I think that pushing, and monetizing their Periscope streaming feature could really raise some interest in the user community and lead to higher sales," he said. "If I were them, I'd look at placing some advertising on TV to publicize this feature more widely. I think that a lot of their traditional users don't know how to use Periscope," a live-stream video app.

Each quarter that Twitter doesn't figure out how to grow at a faster rate will be a continued disappointment, said Brian Blau, an analyst with Gartner.

"Twitter is struggling to find its next pathway forward, but that should not take away from their well-known and respected brand and their ability to capture the pulse of the world," Blau said. "Twitter has tapped into and exposed a global conversation mechanism that others are having a hard time recreating, so there is value in what Twitter is offering. The worry is that if Twitter takes too long to regain its footing, then another service or app could come along and distract or even disrupt what they have built to date."

Judith Hurwitz, an analyst with Hurwitz & Associates, said Twitter isn't off track, but the company needs a strategy that finds a new way to monetize its importance as a platform.

"I think one of Twitter's problems is the company's inability to be able to become an advertising platform," Hurwitz said. "While its platform is lively and well-used, the number of people signing up and using it hasn't increased very much. A company that wants to use Twitter to market its services can do that without buying ads."

While Twitter needs to find a way to lure in more users, it also has to find a way to allow users to create communities of interest so advertisers are encouraged to spend more on specific groups, she said.

"I think Twitter needs to innovate in creating easy ways for users to find each other without having to use third-party tools that force them to segregate their followers into categories," she said. "Twitter also has to be known for something larger than the megaphone and more of a conversation. The average user doesn't understand how to take advantage and get value from Twitter. That has to change."

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