Investors in Twitter Inc. drove down the company's share price
15% on Wednesday after a disappointing earnings report a day
earlier.
Persistent questions regarding the size of Twitter's user base
came back into full view after the company reported its worst
three-month growth rate to date. It added two million new users, or
0.7%, for a total of 304 million in the quarter ended June 30.
(That tally excluded six million new users, mostly in emerging
markets, who accessed Twitter only through text-messaging services,
known as SMS users.)
But a less frequently disclosed metric added to Twitter's woes:
Regular users are signing in less often. Twitter finance chief
Anthony Noto said on Tuesday the share of users who visited daily
fell to 44% in the latest quarter, down from 48% during the first
three quarters of 2014, the only comparable figure available. Those
figures count only users—including those who post via SMS—located
in the company's 20 biggest markets.
In comparison, about 65% of Facebook's users visited the social
network daily in the second quarter.
The two companies define a daily active user slightly
differently. Facebook includes not only users who sign in directly
but also those who share content from third-party websites or apps
like Spotify. Twitter doesn't.
Twitter shares closed down 15% at $31.24, and they hit a 52-week
low of $31.06 intraday.
The share of Twitter users who take advantage of the service
daily is important because the more the service is used, the more
ads it can serve each day, which is the primary way the company
generates revenue. While revenue beat expectations in the latest
quarter, Twitter's difficulty in boosting the bases of regular
users could eventually limit its growth potential.
Twitter has offered little visibility into how active its users
are during its short life on the public market. It stopped
disclosing its main measure of engagement, which it called
"timeline views," in the March quarter because it had become
irrelevant, the company said.
The company acknowledged as early as its first public earnings
report in February 2014 that timeline views were becoming less
valuable due to changes in the way the service operates. A timeline
view was counted each time a user visited Twitter and refreshed the
timeline to view more tweets or conducted a search. But tweets that
form part of a conversation are now threaded together, diminishing
the need for users to search and refresh their timeline.
Twitter hasn't introduced a measure of engagement to replace
timeline views. Instead, it largely has offered general statements
that user engagement was rising around newer features like private
chat. On Tuesday, for instance, Mr. Noto said the number of
searches is "actually growing well" and the number of direct
messages "accelerated."
At Twitter's analyst day in November, Mr. Noto implied the
daily-activity percentage could reach 51% in the "intermediate
term." Since then, it has gone south.
On a call with analysts on Tuesday, Mr. Noto blamed the decline
in daily activity on the fact that monthly active users have grown
faster than daily users.
"We have not historically focused on driving daily active user
growth," he said. "And that's something in 2016 that we will
consider more."
Even so, it remains that less than half Twitter's regular users
check the service every day. That reality adds to the uphill battle
of not only signing up new users but also convincing them to use
the service on a regular basis. Executives admitted that isn't
likely to happen soon.
Moves like increasing the number of ads shown per user can only
drive serious revenue growth for so long, RBC Capital Markets
analyst Mark Mahaney wrote in a post-earnings report. In the end,
Twitter will need more users. "That's why user and usage metrics
matter. And that's why hitting metrics growth walls really
matters."
Write to Yoree Koh at yoree.koh@wsj.com