Revenue Up at Twitter, but Growth Is a Worry

SAN FRANCISCO - Twitter is struggling to convince Wall Street that it is still a company with plenty of potential to grow.

In its second earnings announcement as a public company, Twitter said on Tuesday that it had more than doubled revenues, beating its own forecasts and the expectations of investment analysts. But the social network's stock fell more than 11 percent in after-hours trading because the number of people who joined it did not increase as fast as many had hoped.

Wall Street, it appears, is more worried about Twitter's ability to add users and keep them engaged than about its ability to increase revenues.

In the last two quarters, that has been a problem. Twitter said it had 255 million monthly users globally in March, up 5 percent from 241 million at the end of December, which ended a quarter in which monthly active users rose less than 4 percent.

'They need to prove that they can be a very large-sized platform,' said Arvind Bhatia, an analyst with Sterne Agee, an investment firm. 'Can they get to 500, 600 million users worldwide? That's what they have yet to prove.'

And engagement, a measure of user activity on the site, looked lackluster. On average, users refreshed their Twitter feeds 614 times a month during the recent quarter, up only slightly from 613 times a month in the fourth quarter. Twitter users, especially those overseas, were refreshing their feeds less frequently than they were in the year-ago quarter.

But most disconcerting for shareholders is that Twitter made $1.44 in advertising revenue for every 1,000 timeline views, down from $1.49 in its previous quarter. That may be the best marker of Twitter's ability to make money from its platform, and in the first quarter it was trending down. In a call with analysts, Twitter's executives attributed some of that to seasonality because the fourth quarter tends to be the most profitable.

Twitter's revenue in the first quarter, which ended March 31, was up 119 percent to $250 million from $114 million in the first quarter of 2013. Wall Street had expected Twitter to report revenue of $241 million, according to consensus estimates from Thomson Reuters, while Twitter had forecast slightly lower first-quarter revenues in the range of $230 million to $240 million.

Twitter posted a net loss of $132 million, compared with a loss of $27 million a year ago. Adjusted earnings, however - which exclude stock-based compensation and other expenses - were $183,000, or about break-even per share, compared with a $10.5 million loss a year ago.

In an interview, Dick Costolo, Twitter's chief executive, tried to reassure skeptics.

'We're focused on driving up the value of each timeline,' Mr. Costolo said, using a term to refer to users' Twitter feeds. He noted that 'favorites' and 'retweets' - two actions users take on Twitter's site which require an extra click - were up 26 percent in the first quarter and said new users were as engaged as older ones, an indication that the site is not as confusing to newbies as critics contend.

But analysts think Twitter can do better. 'User metrics are improving, but not fast enough,' Mr. Bhatia said. 'Yes, they're getting better, but the market's looking for more.'

According to Forrester, the market research firm, only 22 percent of American online adults visit Twitter at least once a month, compared with Facebook's 72 percent. But in recent months, Twitter has tried to make its platform easier for new users to understand, by redesigning its profile pages to resemble Facebook, and making it easier to integrate more photos and videos. Twitter is also experimenting with a new way to sign up.

Twitter recently made it possible for users to import mobile-phone contacts so they can follow people they know as they get started. Mr. Costolo said Twitter users could expect other changes in the second quarter intended to make Twitter easier to use.

'We will continue to bring the scaffolding of Twitter into the background and bring the content forward,' Mr. Costolo said. 'And we'll continue to organize content for new users that don't yet have a full set of accounts they're following.'

Twitter has also been courting the television industry as it looks for ways to make money from its users. The company has said that people engaged on Twitter while watching television shows are more likely to stay tuned during commercials, remember the ads and make purchases, compared with those not on Twitter.

But Twitter announced its earnings shortly after an NBC executive questioned Twitter's influence. Alan Wurtzel, president of research at NBCUniversal, told The Financial Times that NBC's own data from the Winter Olympics showed that Twitter had little effect on its ratings.

'I am saying the emperor wears no clothes,' Mr. Wurtzel told The Financial Times.

Mr. Costolo denied that Twitter's NBC relationship had been strained. 'We have a great and growing relationship with NBC.'