Why Twitter, Inc. Shares Tumbled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Twitter,  (NYSE: TWTR  )  plunged 23% Thursday after the social media specialist released better-than-expected quarterly results, but worried investors with decelerating monthly active user growth.

So what: Quarterly sales more than doubled over the same period last year, to $243 million, which translated to adjusted net income of $0.02 per share. Analysts, on average, were looking for a loss of $0.02 per share on sales of just $217.78 million.

What's more, Twitter expects current quarter revenue of $230 million to $240 million, also well ahead of expectations for sales of $216.22 million.

But while Twitter is doing a great job monetizing its user base, its number of global monthly active users increased by only 4% sequentially, to 241 million, good for year-over-year growth of "just" 37%. That includes only 1 million new users in the United States, and stoked fears that Twitter's growth may be stalling.

Worse yet, users are visiting the site less often; timeline views grew by only 26% from the same year-ago period, to 148 billion, which could make it harder for Twitter to lure advertisers going forward.

Now what: In the absence of significant monthly active user growth, Twitter simply won't be able to keep increasing its top line forever. For the market to take the platform seriously as a long-term investment, Twitter must prove it can not only accelerate user growth from here, but also keep those users coming back for more.

Until then, I'll be perfectly happy remaining on the sidelines.

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  • Report this Comment On February 06, 2014, at 7:31 PM, Mr4Gov wrote:

    What the… TWTR is down from its exorbitant valuation?? Hard to imagine a quarterly loss of $511M from a company that chalked up revenues of $243M (beating analysts estimates!?); and why projected revenues for next quarter of only $230M to $240M – my math says that is a decrease in revenue, quarter over quarter? Stock is down nearly $12/share after the close: I wonder how much farther it drops between now and Feb 15th, when insiders are allowed to cash out – greatly diluting this stock. I guess it’s time for me to take my gains now and sell, long before it hits $30 or $32/share, as many of the analysts predict.

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