Cataloging Twitter’s Troubles: High Expectations, Low Growth

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Twitter (NYSE:TWTR) took a beating last week. Shares of the social media company fell nearly 25 percent after it reported earnings for the first time as a public company, beating earning estimates but missing growth projections. Twitter closed the year with 241 million monthly active users (MAUs), only about 60 percent of the active user base it wanted, according to people familiar with the matter who spoke to the Wall Street Journal. MAUs grew just 3.8 percent sequentially, the slowest growth rate in a year and down from the 7.8 percent growth rate averaged in the first three quarters. Analysts, for their part, wanted to see MAUs closer to 250 million.

Financially speaking, the company appears sound. Twitter posted fourth-quarter revenue of $243 million, up 116 percent on the year and above the mean analyst estimate of $217.8 million. Adjusted earnings per share came in at 2 cents, above the mean estimate of a loss of 2 cents. Full-year revenue of $665 million, up 110 percent on the year, beat the mean analyst estimate of $639.4 million. Full-year adjusted earnings per share came in at a loss of 18 cents, still beating the mean analyst estimate of a loss of 19 cents. The company’s business machine, small though it may be, is functioning properly.

But the company’s valuation, which is still lofty at about $19.25 billion, is predicated on the idea that Twitter will grow rapidly and grow large. In the fourth-quarter earnings report, Twitter’s executive team did not exactly inspire confidence in the market that that this would be the case in the near term.

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