Shares of Twitter (TWTR) moved sharply lower on Monday night after the company posted problematic quarterly results. The financials for the third quarter certainly seemed reasonable. Revenue more than doubled, soaring 114% to hit $361.3 million as its monetization efforts continue to bear fruit. Analysts were holding out for only $351.4 million on the top line.
Twitter's adjusted profit of $0.01 a share merely met Wall Street expectations, but there's no shame in that. Twitter has managed to squeeze out marginal profits on an adjusted basis in each of its first four quarters as a public company, but this is the first time analysts were holding out for a profit.
The social-media speedster is also boosting its outlook. Twitter is now eyeing $260 million to $265 million in adjusted EBITDA on $1.365 billion to $1.375 billion in revenue for all of 2014. Just three months ago it was targeting no more than $230 million in adjusted EBITDA and $1.33 billion in revenue.
The past was solid. The future looks even better. Why is the market down on Twitter? Well, the market is now rightfully concerned about usage growth and engagement. Average monthly active users have risen 23% to 284 million over the past year, but timeline views only climbed 14% to 181 billion in that time. With timeline views growing slower than Twitter's user base the logical conclusion is that the typical Twitter users isn't as engaged with the platform as before.
The slowdown gets even more dramatic if we eye the sequential trend. Twitter had 271 million average monthly active users and 173 billion timeline views during the second quarter of this year. That translates into a less than 5% sequential uptick on both fronts.
The silver lining here is that Twitter is milking more money out of its decelerating traffic growth. It generated $1.77 for every thousand timeline views in advertising revenue, up 83% form the prior year's rate. Twitter's doing a lot of things right on that front, introducing new ways to target users in marketing campaigns and making it easier for smaller advertisers to hop on the sponsored platform. It also recently began offering advertisers the ability to add "Buy now" buttons to its tweets, another game-changer as Twitter grows up.
Twitter's dramatic improvement in monetization comes at a time when mobile -- a platform that has been trickier to monetize than traditional desktop -- has been a harder sell for advertisers. Whether it's fear of getting lost in the smaller screens or the difficulty of registering for sites and closing on transactions, some dot-com titans are seeing advertisers paying less for mobile leads. However, Twitter's advertising revenue stemming from mobile usage has grown from 75% of the mix when the year began to 85% nine months later.
Twitter has had a rocky run in its brief tenure as a public company. It went public at $26 late last year, but it's been tumbling since peaking at $75 a few weeks after its IPO. It has bounced back since bottoming out in May, but now the stock is selling off again in light of Twitter's strong -- but not strong enough -- third quarter.
