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Twitter troubles deepen as a lack of user growth threatens ad sales

SAN FRANCISCO — Twitter Inc added no new users in the fourth quarter, confirming the fears of advertisers and investors alike: The social media site is in real trouble.

SAN FRANCISCO — Twitter Inc added no new users in the fourth quarter, confirming the fears of advertisers and investors alike: The social media site is in real trouble.

The company has faced sharp criticism over slowing growth in its audience since its 2013 initial public offering. Even as CEO Jack Dorsey rolled out efforts to make its product more mainstream, by some measures Twitter’s user base shrank from the third quarter.

Twitter tried to divert Wall Street analysts’ attention by listing reasons to believe in its future, including a stronger focus on live events and video, several coming tweaks to the product that it said will benefit advertisers, and a vow to aggressively hire good board members and engineers. Still, a disappointing first-quarter revenue forecast indicates the lack of user growth is also hurting its ability to draw in more advertising dollars, threatening its core business.

“This is the critical period for Twitter, and they need to show more than just optimism,” said Mr Rob Sanderson, an analyst at MKM Partners LLC. “It’s very vulnerable right now, and especially if we are heading into a recessionary environment, those ad dollars are going to become more difficult to get — for everybody.”

Monthly active users were 320 million in the last three months of the year — the same number the company reported in the third quarter — while analysts on average had estimated 324 million. Twitter said it will stop including users on older, non-smartphone mobile devices in its overall count. Without these so-called SMS fast followers, Twitter’s user base fell from the third quarter, to 305 million from 307 million, although the company said since the fourth quarter ended it has already recouped those user losses.

Revenue in the first quarter will be US$595 million (S$827 million) to US$610 million, said the San Francisco-based social network, compared with an average analyst projection of US$627.6 million.

 

Dorsey’s Turnaround

 

Twitter shares have dropped 35 per cent this year, amid deepening scepticism about the company’s turnaround efforts under Mr Dorsey, a co-founder who returned as CEO. Mr Dorsey, who started his tenure in October with staff cuts and the appointment of a new chairman, has been rallying his teams to make the site more accessible and useful for following news stories and live events. On Wednesday he outlined his five priorities: Making the main product easier to use; investing in live-streaming video; giving creators and influencers better tools; investing in making Twitter safer; and supporting developers.

In the fourth quarter, sales rose 48 per cent to US$710.5 million, in line with analysts’ predictions. Excluding certain costs, fourth-quarter profit was US$0.16 a share, compared with an average analyst estimate of US$0.12. The company’s net loss narrowed to US$90.2 million, or US$0.13, said Twitter in a statement.

Twitter appointed Mr Dorsey as permanent CEO in October after a search to replace Mr Dick Costolo, who resigned amid pressure from Wall Street over slowing growth. Mr Dorsey, who also runs payments company Square Inc, has been pushing the staff to change even the aspects of Twitter’s site that seem untouchable. For example, Twitter has considered lifting a 140-character limit in posts, which has been the format since the company started.

The company said Wednesday it will also change the “.@” structure for replies on the site. Earlier that day, Twitter said it would start displaying more popular tweets at the top of a user’s feed, instead of using the traditional reverse-chronological stream.

 

Expanding Advertising

 

Twitter is also working to deal with its user-growth challenge another way: By making it possible for non-members to see advertisements if they click on a tweet, say, in a Google search or a news article. Opening up advertising to that audience adds 500 million people, Twitter has said, and makes its business model more like YouTube’s — you do not have to log in to be valuable to the company. The early efforts in this direction look promising, said Twitter on its call with investors.

Still, Mr Dorsey’s job has not been easy. A week after he officially retook the helm, Twitter cut 8 per cent of its staff. In January, five executives, including the heads of product and engineering, announced their departures on the same weekend. The company has lost at least 20 high-level executives since its November 2013 initial public offering.

Meanwhile, social-media competitors such as Instagram and Snapchat are amassing larger audiences and focusing their products more on what Twitter does best: Real-time news and information. Larger rivals, such as Facebook and Google, have built out real-time advertising capabilities, too.

Twitter is expected to capture 9 per cent of worldwide social-media advertising spending this year, compared with Facebook’s 65 per cent, according to eMarketer. BLOOMBERG

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