Twitter assuages growth concerns, shares soar 35%

Tags: Companies
Twitter Inc halted a slowdown in user-growth in the second quarter with the help of product tweaks and services built around the summer's World Cup, assuaging concerns for now that the online messaging service had peaked.

Shares of the company soared 35% on Tuesday after it reported monthly active users had risen a better-than-expected 24%, chalking up what would be its largest gain in a single day and adding almost $7 billion to its market value.

Twitter, which has battled to reverse a steady decline in its once-heady pace of growth, surpassed targets for virtually every metric Wall Street scrutinizes. Expectations had subsided ever since the company stunned investors in February with disappointingly low user growth.

Before Tuesday's after-hours surge, Twitter had lost about 40% of its market value since the start of 2014. The company now needs to demonstrate several quarters of respectable growth before investors can again back the 10-year-old company's growth story, analysts said.

"The expectations going in had become quite low," said Sterne Agee analyst Arvind Bhatia. "Even in the US their performance was good. For now, that will put to rest some of the concerns about US growth."

"One would still have to say that the jury is still out," Bhatia said. "You have to look maybe at what happens in the next quarter and see if they can continue to have upside on the user growth."

Twitter saw users increase to 271 million, still dwarfed by rival Facebook Inc's 1.3 billion. Wall Street analysts had been expecting a pace of growth closer to 21%.

Timeline views, a measure of the engagement of its users, also exceeded expectations with a 15% increase, far outpacing the roughly 8% expected.

Twitter, whose rapid-fire format has proven popular as a companion to major global events, may have enjoyed a boost from the World Cup. The world's most popular sporting event peaked with the finals in July.

Chief Executive Dick Costolo said in a conference call with analysts on Tuesday that the football tournament led existing users to spend more time on Twitter but did not contribute to the rise in new users during the quarter.

For the current quarter, Twitter is forecasting revenue of $330 million to $340 million, outpacing forecasts for around $323.7 million, according to analysts polled by Thomson Reuters I/B/E/S.

Its shares jumped to $51.20 in extended trading, from a close of $38.59 on the New York Stock Exchange.

BRIDGE TOO FAR

User growth has stagnated since Twitter went public to much fanfare in November. Yet it remains valued at almost 200 times earnings, based on bullish investors' belief it can eventually transform itself into an Internet platform on the same scale as Facebook.

Incoming Finance Chief Anthony Noto set expectations high on Tuesday, telling analysts that he believed Twitter can build the "largest audience in the world."

Twitter executives noted several times on the call that the service's reach is greater than its 271 million monthly users, citing hundreds of millions of other people who visit the website or are exposed to Twitter content without being logged in to the service.

Some investors argue its reported user numbers do not fully reflect engagement, particularly with media viewers. Others say its inherently complex format deters wider adoption.

At its peak, Twitter enjoyed a $46 billion capitalization on $665 million of revenue in 2013, making it at the time one of the world's priciest stocks.

But in past few months, Twitter has granted more prominent placement to photographs to liven up its interface, simplified the sign-up process, and allowed ads touting mobile-app installations to drive up revenue.

It reported a 124% jump in quarterly revenue to $312 million, beating expectations for $283.1 million. It posted non-GAAP net income of $14.6 million or 2 cents a share, reversing a loss of $16.4 million or 12 cents a share a year earlier.

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • India must follow China on its path to the future

    There are many theories, real and imagined, doing the rounds in the national and international media about Barack Obama’s overtures to ‘rebalance

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

Arun Nigavekar

Will the adventurous UGC succeed?

The impact of the Modi government on the education sector ...

Zehra Naqvi

The urge to tell stories

One wants to tell a story, like Scheherzade, in order ...

Dharmendra Khandal

Don’t interfere with nature

Just before we celebrated the news of tiger numbers swelling, ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture