Twitter Could Use a Longer Engagement

The Wall Street Journal

Twitter is still struggling to fly the nest.

The micromessaging service said late Tuesday that it had 255 million monthly active users in the first quarter. Up 6% from the prior quarter, that marked the end of a four-quarter streak of slowing sequential subscriber growth.

Year over year, though, user growth keeps slowing. Getting bigger is essential for Twitter. Its lofty valuation rests on its ability to keep taking share in the rapidly growing mobile-advertising market. Hence, investors sent its stock down more than 10% after hours following a strong showing during the day.

Engagement, another crucial metric for advertisers, also saw a mixed picture. Overall timeline views rose 15%, year over year. But looked at per monthly active user, they were flat sequentially and down 8% compared with the first quarter of 2013.

Similarly, overall revenue came in at $250 million in the quarter, beating expectations and averting the quarter-over-quarter decline Twitter had projected. But average revenue per user fell to 98 cents versus $1.01 in the fourth quarter of last year.

Twitter chalked this up to seasonal effects. It said engagement in the form of favorites and retweets rose sequentially, showing the increased value of each user. Twitter also has recently rolled out efforts to simplify its platform and push user adoption, including new timeline layouts and the ability to tag people in photos.

The weak results come ahead of the May 5 expiration of a lockup on roughly two-thirds of the diluted share count. At least some insiders will likely sell—something that bulls may see as a buying opportunity.

But Twitter still trades at roughly 25 times 2014 sales estimates, compared with 13 times for Facebook. Those thinking the company is ready to fly are still going out on a limb.

Write to Miriam Gottfried at miriam.gottfried@wsj.com



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