Twitter posts less-than-expected first quarter revenue

Despite posting revenue and user growth in the first quarter ending March 31, Twitter’s shares fell by 11% after it missed analyst expectations.

The San Francisco-based social network’s revenue was up in the quarter by 36%, to US $595 million (A$782.7 million) from $435.9 million (A$573.4 million) in the same quarter in 2015. But analysts polled by Yahoo Finance and Thomson Reuters had predicted $607.9 million (A$799.7 million).

Twitter also increased the amount of monthly active users by 5 million to 310 million in that period, but this was nevertheless not as large as hoped. Compared to Twitter’s 3.86% growth, Facebook’s user growth in its fourth quarter was 14%. Popular social app WhatsApp has 1 billion active monthly users while Instagram has 400 million.

Despite its revenue growth, Twitter still posted a net loss of $79.7 million (A$104.8 million), compared with a loss of $162.4 million (A$213.5 million) the year before. This was due to brand marketers who “did not increase spend as quickly as expected in the first quarter” but noted that it sees “a clear opportunity to increase our share of brand budgets over time.”

Expenses grew 26% year-over-year to $490 million (A$644.2 million), in part because of higher traffic acquisition and marketing costs.

Its COO Adam Bain says that Twitter will use new video tools to increase its brand advertising business, target a wider demographic (which it has done with Twitter Moments in late 2015 and GIF search in February to appeal to younger users) and find more live streaming and behind-the-scene show partners.

Twitter’s problem is that while it’s tweaked its core product and remained culturally relevant, these changes have not widened its appeal as its rivals have successfully done. Its R&D budget is up 17% from 2015 to $800 million ($1 billion) but analysts say it needs to be more aggressive in finding new features and cutting costs.

Nevertheless, Twitter co-founder and CEO Jack Dorsey remains optimistic. He has come back to take control of the company and brought in a fresh executive team. About 300 jobs were cut, leaving a staff force of 3,900 behind.

Dorsey points out, “We’re focused on what Twitter does best — live. We made a lot of progress on product innovation this quarter, particularly with live video and our refined timeline, and people love it — with less than 2% opting out. We remain focused on improving our service to make it fast, simple and easy to use.”

Direct messages on Twitter are up 50% year on year and tweets shared via direct message are up over 75% quarter-over-quarter. Twitter said more than 800 million visit the site, and over 1 billion monthly unique visitors to pages that syndicate Twitter content. It also reveals new follows on the service are up about 48%, and mutual follows are up about 56% on average across iOS and Android.

Twitter’s strategy is to work at getting a 7.9% share of global social network ad spending this year (Facebook’s share is 67.9%) and grow its digital ad revenue by 30% this year.

For the second quarter, Twitter expects revenue between $590 million (A$775.7 million) and $610 million (A$802 million).