Twitter beats estimates but growth fails to impress

Wall Street has sent a direct message to Twitter: Get more followers.

The social-network giant beat financial estimates for its first-quarter earnings, but fell short of expected growth in number of people using the popular social-media platform.

As a result, shares of Twitter dropped about 10% in after-hours trading to $38.09, following Twitter's earnings release after the market close. The San Francisco-based company reported that monthly active users came in at 255 million, a 25% year-over-year increase but below expectations.

Mobile users continued to grow, improving to 198 million in the quarter, up 31% over last year, accounting for 78% of total users. Timeline views, the number of times Twitter users looked at their message stream, hit 157 billion, an increase of 15%.

Analysts had hoped for users to top 262 million and Timeline views of more than 162 billion. Twitter showed "good monetization, but the key metrics were below expectations driven by weakness internationally," said Wedbush Securities analyst Shyam Patil. "This is likely to weigh on the stock."

Twitter said it broke even for the quarter and had revenue of $250 million, beating expectations of a loss 3 cents per share and revenue of $241.7 million, according to estimates from S&P Capital IQ.

Advertising revenue of $226 million rose 125% over the same period last year. And all-important mobile revenue represented 80% of total ad revenue, an increase over the 75% share from last quarter. "We had a very strong first quarter. Revenue growth accelerated on a year-over-year basis, fueled by increased engagement and user growth," said Twitter CEO Dick Costolo.

This is only Twitter's second earnings report, as the company went public in November 2013. Shares have trading well below its January peak of more than $74. It's still valued at about $24 billion, or about 20 times estimated 2014 sales of $1.2 billion. That's compared with Facebook's value of $144 billion about 12 times its sales value.

Wall Street has been looking for Facebook-like growth from Twitter, says RBC Capital Markets analyst Mark Mahaney. "Facebook is well over 1.2 billion or 1.3 billion users, with growth in the mid-teens year-over year. (Twitter) keeps accelerating, and the number of users they have is growing 25%, year over year, which is good growth," he says. "But I think there were people, including within the company, who thought (Twitter) could have half a billion users at some point. It looks like they still have a lot of work to do to really mainstream the service."