Slower user growth poses big challenge for Twitter

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Posted: Friday, February 7, 2014 12:00 am | Updated: 2:17 pm, Thu Jun 5, 2014.

Twitter Inc., the microblogging service that amassed more than 200 million users in seven years, is now struggling to widen its audience as quickly.

Its shares fell nearly 25 percent on Thursday, a day after the San Francisco-based social network posted its first earnings report since going public in November. Twitter’s monthly active users totaled 241 million in the fourth quarter, up 30 percent from 185 million a year earlier and slower than the 39 percent growth seen in the prior period. Usage dipped, with 148 billion views of Twitter timelines compared with 159 billion in the third quarter.

CEO Dick Costolo said in an earnings call that he is focused on reversing the trend.

The results raised concerns that Twitter’s easy growth phase is ending. As recently as a year ago, Twitter, which began in 2006, was adding new users at rates of more than 60 percent a year and timeline views were soaring. If the usage declines continue and new members join more gradually, the unprofitable company may fall short of its goal to be a mainstream service like Facebook and may find it difficult to justify its $34.7 billion market capitalization.

“Twitter needs to answer the question about whether it can ever become a mass-market product, or whether it’s more destined to be a niche for news junkies,” said Robert Peck, an analyst at SunTrust Robinson Humphrey Inc. in New York. “Depending on how fast it’s growing, that’s what we’re willing to pay for it.”

Costolo said on the earnings call that the company has a plan to increase the number of users and engagement, primarily by making the site easier to use.

“Up until last year, our growth has been viral and organic,” he said. “Growth was something that happened to us.” Now “it will be a combination of changes introduced over the course of the year that will start to change the slope of the growth curve.”

Over the quarter, the number of timeline views may have decreased because Twitter has been working to make each one more valuable, with more people sharing and clicking to “favorite” one another’s messages, Costolo said on the call.

Brian Blau, an analyst at Gartner Inc., said the slowing user growth was troubling, given that Twitter’s advertising business depends on more people spending time on the service.

“They’ve got some user engagement issues,” said Blau. “What I don’t see here is any kind of formula that says they’ve got the killer gigantic big kinds of products and revenues that you see from companies like Facebook and Google. They’re trying to fix it, but they’re not there yet.”

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