SAN FRANCISCO (USATODAY.com) - Twitter CEO Dick Costolo on Wednesday came out pitching the case for the service's mainstream potential as the company faced growth concerns in its first financial report to Wall Street since going public.
Twitter beat Wall Street's sales and profit forecasts, but shares nose-dived more than 17% in after-hours trading on lackluster user growth and engagement figures.
"We can increase high-quality interactions and make it more likely that new or casual users will find the service as indispensable as our existing core users do," Costolo said on the company's conference call.
Share of Twitter plummeted $11.59, to $54.38, following its letdown that monthly active users came in at 241 million, a 30% year-over-year increase but well below expectations. Twitter's engagement dropped to 148 billion Timeline Views, an 11 billion decline from the previous quarter.
SHINAL: Wall Street has yet to learn Twitter's language
"What twitter needs to prove is two things, that they can dramatically increase engagement with advertisers and they can dramatically increase engagement with users. The market is now questioning whether they can go mainstream," said RBC Capital Markets analyst Mark Mahaney.
The company, based here, reported $9.8 million in net income, or 2 cents per share, on $243 million in revenue.
Twitter was expected to report a loss of $13 million in net income on $218 million in revenue in the quarter, according to the survey of estimates from Thomson Reuters. Analysts were predicting a loss of 2 cents per share.
Twitter said in its earnings report that it now sees 75% of its advertising revenue from mobile, up from 70% in the previous quarter.
Shares of Twitter have seen a 47% run-up in trading since the company went public Nov. 7.
"We feel very well positioned for growth in 2014," said Costolo.
Twitter has a lofty valuation relative to its peers. Twitter is valued at about $37 billion, or nearly 33 times estimated 2014 sales of $1.2 billion. Meanwhile, Facebook trades at 14 times this year's sales forecasts while LinkedIn is at 12 times.
Also of concern, Twitter's deceleration of monthly active users, a closely watched measurement, raises questions about its ability to continue to grow as steadily as Facebook.
The company faces some headwinds in lock-up expirations on its stock as well. About 9.9 million shares will become eligible for sale by non-executive insiders on Feb. 15, and on May 7 it's expected that 454.3 million shares held by all insiders will lose trading restrictions, putting downward pressure on the stock.
"My guess is that Twitter will be successful long term in re-accelerating user engagement," said Mahaney.