Twitter hammered in pre-market trading as user growth disappoints

Twitter shares are down nearly 13% to $37 a share prior to the opening of the US markets after a disappointing earnings release last night. The shares are down from a high of $74 reached in December 2013 after its IPO in November.

The company’s shares closed at $44.90, up more than 72% on their first day of trading with an IPO price of $26 valuing the company at $14.2 billion. So the stock is now below its first day trading price after recent weakness caused by the general tech sell off and now the latest below par numbers.

The big disappointment for investors in Twitter was a low number for the increase in monthly active users, though the company was keen to talk up the growth in with an increase in $250.49 million for the quarter from $114.34 million, a year ago, which beat expectations by around $10 million.  Sales increase  119% versus a year ago, proving in the company’s opinion that its efforts to monetise its platform were working.

The company reported a first-quarter loss of $132.36 million, or 23 cents a share, compared with a loss of $27.03 million, or 21 cents a share, for the year-earlier period compared with forecasts of a loss of around 3 cents a share.

Average monthly active users were 255 million as of the end of March 2014, below expectations of 257-260 million users, which increased anxieties that the Twitter platform may be reaching its peak in terms of popularity. Twitter’s monthly users rose 25% year over year and 5.8% quarter on quarter but were down from Q4’s 30% growth and compared with 78% during 2011, and 30% during 2012.

Twitter users looked at their feeds a total of 157 billion times in Q1, about in line with analyst expectations. Views rose 6% sequentially from 148 billion times in Q4, reversing the prior quarter’s 7% decline. Q1 sales per feed view grew 96% year over year to $1.44, but that was down from $1.49 in Q4.

The company has a big cash cushion with $2.2 billion in cash and short term investments at the end of March 2014 with plans to spend up to $390 million in capital investment during the rest of 2014.

Dick Costolo, Twitter’s chief executive, has plenty to do to persuade Wall Street that there is more to come.

For the second quarter of 2014, the company said it expects revenue of $270 million to $280 million with a new redesigned interface and with efforts in place to make it easier to register for Twitter. The company is working on enhancing private messaging and ecommerce offers and is launching a Mobile advertising exchange which will allow advertisers and publishers to get maximum flexibility by being able to access every network from one place. Twitter recently bought Gnip allowing it to sell analytical services based on what people are tweeting.

The fall in the share price may go on next week when a lock out period for investors to sell shares expires. When the company had its IPO, 589.5 million shares were prevented from trading for 180 days from the November 6^th 2013 listing. On February 15th, Twitter shareholders were allowed to sell up to 9.87 million shares but many of the remainder have the potential to be sold from Monday.

With a $24 billion market cap, there’s still plenty of hope built into Twitter’s share price and for now momentum stocks continue to be out of favour after a great run in 2013. One to watch over the next few weeks if insiders do decide to dump stock to keep an eye on a potential inflection point similar to Facebook which traded down well below its IPO price  and then bounced strongly as it resolved its mobile advertising issues.

Contrarian Investor UK

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