Twitter growth slowdown has shares in a spin

Twitter’s user growth has slowed in its first quarter as a public company, sending its share prices into a downward spiral.

Twitter Inc.’s shares fell by nearly a quarter on Thursday, wiping out over $9 billion in market value. The company released its first quarterly earnings report revealing that while the social media platform’s revenue was up, user growth was slowing.

Fourth quarter revenue was up by 116% year-over-year to $243 million, with a net loss of $511 million. Revenue for the full year was $665 million, up 110% year-on-year, with a net loss of $645 million.

The site averaged 241 million monthly users in the December quarter, up just 3.8% from the previous three months. This figure was the lowest rate of quarter-on-quarter growth it has recorded.

Paul Wallbank, publisher of Networked Globe, says we may be expecting too much from social media companies.

“Perhaps we are expecting too much revenue,” he told SmartCompany. “We have been dazzled by the numbers [of users] without understanding the underlying business model.”

At the moment Twitter draws revenue from so-called sponsored Tweets, which feature as advertisements on a user’s timeline.

“It’s problematic,” said Wallbank. “It’s not going to bring in as much revenue as what they expect. When you look at Twitter’s financial statement, most of the costs last quarter came out of acquisitions. The question is whether they are going to turn those into revenue generating centres.”

Social media site LinkedIn also delivered a revenue forecast that fell short of expectations, with shares falling around 8% in after-hours trading yesterday. Wallbank thinks social media companies can bounce back, but for the moment people need to adjust expectations when it comes to revenue.

Sam Hamadeh, founder of financial analyst PrivCo, told The Guardian Twitter’s projected value had outstripped its growth.

“Twitter added just 9 million users, or less than 4% sequential growth,” he said. “This company is being valued at 60 times its revenues – a nosebleed valuation – on the expectation it will grow revenue 100% annually for the next five years or more.”

Hamadeh went on to say Twitter could not possibly double its advertising revenue if its audience growth stayed at current levels.

“It would be like expecting American Idol to double revenue next year when its ratings show its audience grew just 15%. It’s not happening.”

Social media heavyweight Facebook has around 1.2 billion users worldwide, while Twitter sits just under the one billion mark.