Twitter shares plunge on growth worries

It was only last fall that Twitter (TWTR) staged its wildly successful IPO, with a feeding frenzy among investors sending the social network's stock up 73 percent on its first day as a public company.

Tough crowd. Late in Thursday's trading session, Twitter shares were down 23 percent a day after the company's latest earnings report. Although Twitter beat analyst expectations, it also revealed that it is adding users at a much slower pace.  

 Twitter's financial performance was solid. Its revenues climbed strongly, while the company's losses were significantly lower than what analysts had expected. Twitter has been seen as a growth company, where investors are betting on a rapid increase in size that will boost demand for the stock. 

 Without the explosive growth that Twitter demonstrated in earlier years, however, people are now taking a harder look at whether its fundamentals justify its stock price.

"Along the way, a lot of other players jumped in with interesting twists on the Facebook approach -- interesting ideas and ways of providing slightly different services," said Larry Chiagouris, a professor of marketing at Pace University, in an interview with CBS MoneyWatch. "But there's the problem: None of them can make it without advertising support. There's a finite limit to how many advertising dollars are available, particularly for what are relatively speaking unproven media vehicles."

The pie is growing, in other words, but with more and more social media companies competing for ad dollars, each slice is smaller.

Sterne Agee analyst Arvind Bhatia downgraded Twitter shares on Thursday, giving the stock an "underperform" rating and highlighting the company's decelerating user growth. According to MoneyWatch calculations, although the number of average users Twitter drew per month last quarter increased 30 percent over the year-ago period, that figure was up only 4 percent over the previous quarter. 

 That suggests Twitter's annualized growth rate has been cut in half.

Another reason Bhatia downgraded Twitter was a decline in user engagement measured in so-called timeline views, as Jim Edwards reported at Business Insider. And, according to figures from Twopcharts, which tracks Twitter users, there are 940 million registered user accounts on Twitter, but only a quarter of them use the system even once a month.

That could indicate that most people who try the social network don't find anything compelling, suggesting that Twitter will struggle to attract users.  

  • Erik Sherman On Twitter»

    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.

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