Twitter reports good revenues, but slowing user growth – which matters more?

Twitter released its first earnings report as a public company. They beat expectations on revenue – reporting a 116% rise on the same period last year to $234 million for the quarter. They also performed better on profit – reporting a smaller loss than expected. However, the user numbers were not as successful – with monthly active users growing by less than 4% on the previous quarter.

The financial numbers tell a good story – revenues increasing as underlying ┬álosses decrease. In fact Twitter has outperformed expectations. More than 90% of its revenue comes from advertising and they are getting more sophisticated at selling space for brands to engage their customers.

But the user numbers do not tell such a good picture. The number of monthly average users in Q4 was 241 million, just a 3.4% rise on the previous quarter and a significant slowing compared to the growth the platform has previously enjoyed. Further, Timeline views were down 7% suggesting that users were refreshing their feeds less often.

So revenues and profits are going in the right direction and beating expectations; but user numbers and activity rates are going in the wrong direction. Which matters more?

For a company at Twitter’s stage of monetisation this poses a problem. To continue to grow revenues, and to turn the losses into profits, Twitter needs to keep and grow its user base. Both in terms of active users of the platform, and the frequency with which they use it. With no users on the site there would be nobody to advertise to.

This quarter’s numbers are not disastrous for Twitter by any means, but they should raise an alarm. They need to focus on the users and on increasing user numbers and activity at a faster rate. Only by focusing on the users will they ultimately see the financial payoffs that their investors now seek.