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Why Twitter, Inc. Shares Tumbled

By Steve Symington - Feb 6, 2014 at 4:47PM

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Is Twitter's plunge meaningful? Or just another movement?

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, (TWTR 0.73%) 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.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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