Twitter’s quarterly earnings reports are proof that you can beat the Street and still disappoint your investors. Despite the fact that the company brought in $361 million in revenue when analysts were expecting closer to $351 million, the company’s stock plummeted ten percent in after-hours trading following its third quarter earnings release.
The culprit, as ever, is Twitter’s growth. The company reported 284 million monthly active users in its third quarter earnings report, 13 million more than in the second quarter. But in the second quarter, Twitter had added 16 million more from the quarter before. In short, Twitter’s growth rate is slowing. Not good news for a company still early in its public market days.
CEO Dick Costolo addressed the concerns early in his opening remarks on the earnings call. “It’s more critical then ever that we increase our pace of execution,” Costolo said. He wants to see “faster iterations from hypothesis,” where engineering and product teams work to build and test new features more quickly. In other words, Costolo wants Twitter to learn how to fail fast.
The second factor that may have contributed to investors’ displeasure is Twitter’s projected revenue for next quarter, between $440 and $450 million, whereas analysts were predicting a higher average of $449 million according to Reuters. Twitter’s other metrics were on par for what was expected, with the company bringing in 1 cent earnings per share.
Unrelated to the financial markets, Twitter’s CFO Anthony Noto addressed the algorithm crisis that sent Twitter power users into a panic. He promised that Twitter would “always” be a real-time network, while in the same breath explaining that old tweets will be resurfaced later if they’re “important.” As Gigaom’s Mathew Ingram pointed out, there’s nothing stopping Twitter from continuing down that path.
@jayrosen_nyu: That's my feeling, yes. If highlighting "important" tweets hours afterwards goes well, I assume they will try other things
— Mathew Ingram (@mathewi) October 27, 2014
This story has been updated to include information from the earnings call.