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No, Twitter (NYSE:TWTR) isn't ready for prime time.
On Wednesday, the microblogging outfit released its first-ever quarterly report, after going public this fall, and the numbers show that relatively few new users are joining the company's social networking service — a service that's extremely influential but nowhere near as popular as a site like Facebook (NASDAQ:FB). Over the last three months, Twitter user growth decelerated to levels well below Wall Street expectations, and worse still, existing users are spending less time with the service.
The result: Shares plunged 17 percent after hours. The drop is not just a bad omen for Twitter in particular, but growing tech start-ups in general. Many are looking to Twitter as a bellwether for the next generation of tech IPOs.
Twitter reached 241 million active monthly users last quarter, but Wall Street expected 248 million. The number of users grew just 4 percent over the previous quarter, continuing a long slide. That's barely a third of the growth rate from a year ago. Meanwhile, the time these users spend viewing the Twitter timeline declined 7 percent from the previous quarter.
CEO Dick Costolo seems to realize that gaining new users is an urgent challenge. In a conference call with Wall Street analysts and reporters, he spent much of the time discussing recent initiatives and experiments that he believes will reignite growth, such as easier registration on mobile devices, recruiting those who used the service in past but are now inactive, and improving the service's private messaging functions. Costolo's primary goal is to get people addicted to Twitter in the first seconds after signing up for the service, rather than wooing them over weeks or months.
"We have massive global awareness of Twitter, and we need to bridge the gap between awareness of Twitter and deep engagement on the platform," he said.
It's a big challenge. At its current growth trajectory, Twitter will need 12 years to get to 200 million monthly U.S. users, as Sanford Bernstein analyst Carlos Kirjner pointed out during the call. Costolo responded by saying that changes already under way should get Twitter to that point much sooner, although he declined to set a deadline.
Twitter is up against more than just math. It also faces organizational complacency. The service has long been a darling of Silicon Valley as well as certain global pundits enthralled with the role Twitter played in various protest movements. The company is so iconic that, for years, it didn't have to worry about recruiting new users, just how to handle them once they arrived. "Until last year, our growth had been viral," Costolo said. "Growth was something that happened to us."
Now, Twitter must pivot from being a subject of interest to becoming a generator of interest. And no one knows that better than Costolo and the other Twitter employees who are watching their locked-up stock options plummet in value. Yes, Twitter stock is still at more than double its initial offering price. But it will only take a few more drops like today's to wipe out those gains.
And those employees aren't the only ones watching. So are others across Silicon Valley.
Written by Ryan Tate at Wired.com.
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