Last week Twitter's share fell by a massive 24%, that's from $66 to a low of $50. This is actually the lowest level Twitter shares have traded at since December 10th 2013. But why exactly did it drop? Firstly Twitter reported its earnings for the fourth quarter and full-year of 2013 to the market. Q4 revenue rose 116% to $243m, Q4 net loss of $511mn vs $9m loss a year ago, full-year revenues rose 110% to $665m, full-year net loss of $645mn vs $79m a year ago, and average active monthly users went up by 30% year-on-year to a total of 241 million. Now these numbers aren't so bad, but Twitter has yet to make a profit so far, and while not a massive concern just yet it will be an issue if losses continue to increase.
What really caused the share price drop was the slow user growth and engagement, investors look to the future rather than just looking at the present and while 30% sounds like a good number it's actually a slowdown in active user growth for Twitter, its slowest at just 3.8% growth in first quarter. Twitter also had a 7% decline in quarterly timeline views which adds more concern to the networks future. When such statistics are compared to Facebook who reported their strongest revenue growth in two years, it's easy to see why the stock dropped so quickly.
Twitter is going to have to get used to how fickle the markets are very quickly. In their first earnings report to the markets which showed that users were refreshing their timelines less often and user growth slowed to 3.8%, investors rapidly sold their shares forcing the stock price down 24%, wiping more than $6bn off the company’s value.
Was this a market overreaction? Yes but when you have a stock that has rallied from $40 to a high of $74 at the end of last year, volatility becomes a feature in both the good times and the bad. I still think Twitter has huge potential and despite this disappointment, many will see Twitter with optimism and value.
Now this doesn't mean it's the end of the company. Twitter’s CEO, Dick Costolo, said they're doubling down on accelerating Twitter’s user growth. On the recent earnings Costolo said:
Twitter finished a great year with our strongest financial quarter to date. We are the only platform that is public, real-time, conversational and widely distributed and I'm excited by the number of initiatives we have underway to further build upon the Twitter experience.