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Twitter’s user growth skids to a stop

Twitter’s San Francisco headquarters.
James Martin/CNET

Twitter has been a slow-growth company for a while. The company on Tuesday warned investors that it’s essentially a no-growth company.

“We do not expect to see sustained meaningful growth in [monthly active users] until we start to reach the mass market,” Twitter CFO Anthony Noto told analysts during the company’s second quarter conference call. “We expect that will take a considerable period of time.”

Shares plunged more than 11 percent in after-hours trading.

Twitter earlier said the number of monthly active users grew just 3 percent from the previous quarter to 316 million. That’s bad news for a social networking company up against Facebook’s 1.44 billion monthly active users and Snapchat’s 100 million daily users who send about 700 million Snaps and view about 2 billion videos every day. Advertisers naturally want to reach the biggest audiences they possibly can. Noto’s comment sets up an almost chicken-and-egg conundrum for Twitter: It won’t grow until it reaches a mass market, and it can’t reach a mass market if it doesn’t grow.

“Advertisers aren’t going to buy in until a big, global and diverse audience comes on board,” said Gartner analyst Brian Blau. “It’s a non-growth business, and that’s a problem.”

Longtime Twitter investor Chris Sacca urged the microblogging site’s leaders in June to
by taking risks, question key assumptions and launch features more often.

The company has been trying. In recent months it’s taken steps to make the site easier to use and more inviting, curb abusive or threatening messages, and highlight tweets in Google search results. Twitter is also overhauling its front page to make it more visually appealing and show trending videos and photos — giving visitors a way to experience live sports or news events as they’re happening. There’s a chance the redesign, for now called Project Lightning, will lure more new users when it goes into effect this fall.

“It’s going to be an uphill battle for them,” said Forrester analyst Erna Alfred Liousas. “If it’s taken Twitter this long to get these many followers, and it’s only a fraction of Facebook, what are they going to have to do to appeal to the greater masses?”

Interim CEO Jack Dorsey, who co-founded Twitter in 2006, acknowledged the company’s difficulties appealing to a mainstream audience.

“We are not satisfied with our growth in audience,” Dorsey said in a statement. “In order to realize Twitter’s full potential, we must improve in three key areas: ensure more disciplined execution, simplify our service to deliver Twitter’s value faster, and better communicate that value.”

He took an even harsher tone during Tuesday’s conference call about why the company’s efforts still hasn’t attracted enough users.

“This is unacceptable and we’re not happy about it,” he said.

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The second quarter was the last period under Dick Costolo, who resigned as CEO in June and was replaced by Dorsey on an interim basis earlier this month.

During Tuesday’s conference call, which was seen by thousands on Twitter’s live-streaming app Periscope, Dorsey said the company did not have any new information on its search for a CEO.

He repeatedly added the company is determined to do a better job communicating to more people why they should use the service day in and day out.

“You should expect Twitter to be as easy as looking out your window to see what’s happening,” he said. “You should expect Twitter to show you what’s most meaningful in the world, delivered first before anyone else and straight from the source.”

Twitter on Tuesday reported profit, excluding some costs, was 7 cents a share on $502 million in revenue. Analysts polled by Thomson Reuters had estimated 5 cents a share profit on $480 million in sales.

The company projects revenue of $545 million to $560 million the current quarter.

Update, 10:15 p.m. PT: With further comments from Dorsey.

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