Twitter Delivers on Revenue, but Flops (Again) on User Growth

Fourth Quarter Brings in $432 Million in Ad Revenue, Only Four Million New Users

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Twitter's Wall Street woes are far from over.

In its fourth quarter earnings, the company proved once more that it can make money -- revenue of $479 million beat expecations -- but the service simply cannot gain users. It added only four million monthly active users, around eight million shy of analyst estimates.

Ad revenue continued to climb, up 97% to $432 million. In the U.S., Twitter earns $5.65 in ad dollars for every 1,000 timeline views -- when a user refreshes their feed -- a 49% annual increase. Outside the U.S., that figure grew at a faster clip but remains low at $1.16.

Although Twitter can continue to sell ads in the U.S., it can't attract users. Its new monthly users were attributed to countries outside the U.S.

This is the first quarter under Twitter's new business structure, which is shifting Wall Street's attention away from the registered active users stat. Last quarter, Twitter merged the product and ad revenue divisions under Kevin Weil, VP-product, who was promoted in late October. Mr. Weil was busy, releasing a series of products and updates -- several of them focused on Twitter's new strategy, outlined in November, to convert and capitalize on its "logged-out" audience through syndication partnerships, search and improved user on-boarding.

In the weeks before earnings, Twitter had an uncharacteristic flurry of activity. The company introduced features for group messaging and direct video posting, a prelude to the acceleration of its video ad product. It launched its first syndicated ad partnerships, with Flipboard and Yahoo Japan. It acquired ZipDial, an Indian startup, to fuel user growth abroad. And, perhaps most critically, it inked a deal with Google, as first reported by Bloomberg, part of a bid to bring in users and spread its content across the web.

CEO Dick Costolo remained under fire, with rumors circulating that shareholders were attempting to push him out. Peter Currie, a Twitter board member, defended Mr. Costolo, followed by votes of confidence from two Twitter co-founders, Evan Williams, of Medium, and Jack Dorsey, of Square.

Mr. Costolo began the earnings call with his own compliments, praising his staff and its latest products. User growth, he said, suffered from a normal seasonal lull as well as issues "related to iOS updates," responsible for the shedding of four million active users during the quarter. The executives said they expect numbers in the current quarter to be on par with the prior year, when 14 million new active users signed up.

On the ad side, Twitter had the reverse experience. "Many brand advertisers ramped spending around the holiday seasons, particularly in the U.S.," CFO Anthony Noto said. Promoted tweets were up 130% year-on-year and ad engagements increased 70% during all of 2014, he claimed. Demand, he added, continued to outstrip supply.

Timeline views, the engagement metric Twitter has used since its inception as a public company, will no longer be reported. It's an indication of Twitter's fresh focus on logged-out users, who may encounter tweets differently. "We have specific product changes that will hurt that metric," Mr. Noto explained.

On the call, Mr. Costolo confirmed Twitter's partnership with Google, but offered no details on the arrangement. He suggested that more syndication deals, like those with Flipboard and Yahoo Japan, would arrive shortly and indicated plans to incorporate paid ads into Twitter's new homepage for logged-out visitors. "It's going to be the very same ad unit that we've brought to the Twitter owned-and-operated properties that what will be bringing to the logged-out experience," he said.

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