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Twitter's first earnings report raises doubts about growth

In its first earnings announcement as a public company, Twitter (TWTR) badly disappointed the markets.

Quarterly revenue of $242.7 million was well above analyst expectations of $217.8 million, and non-GAAP profits of 2 cents a share were far better than a loss of 2 cents to 13 cents analysts had predicted. But the growth of users is slowing, potentially putting a cap on how well Twitter can do in the future. Within 30 minutes of the news, shares were down more than 11 percent in after-hours trading. 

"Twitter finished a great year with our strongest financial quarter to date," said CEO Dick Costolo in a company press release.

Twitter had a lot to prove today in its first earnings report. The stock has been trading at about 32 times expected 2014 sales. That's more than double Facebook's (FB) ratio and almost triple that of LinkedIn (LNKD). The expectation that drives that level of value is growth.

Although Twitter showed 116 percent earnings growth year-over-year, it has yet to show a profit in any quarter. Monthly active users, a social network metric that shows user popularity, hit 241 million. That's a 30 percent increase over 2012, but it's less than 4 percent higher than the previous quarter. Annualized, it's about half the year-over-year growth rate. And Twitter's big rival, Facebook, already has more than a billion users.

Twitter's major strength continues to be in mobile. Some 76 percent of its users use the service at least some of the time through smartphones or tablets, and three-quarters of its revenue is from mobile. But Twitter must still show why investors should bet on its ability to grow.

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