CEO Dick Costolo Promises More Accessible Twitter as User Growth Slows

Loss Exceeds Analysts' Estimates as User Growth Slows

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Twitter has some more growing up to do.

On the one hand, its ad business is clearly maturing and showing robust growth. On the other, growth is flattening, and CEO Dick Costolo conceded the company needs to do a better job making itself accessible and useful to the masses.

""We don't need to change any characteristics of our platform, we simply need to make Twitter a better Twitter," he said.

Twitter reported revenue of $242.7 million for the fourth quarter of last year, up 116% from $112 million over the previous year. That amounts to a profit of $9.8 million on an adjusted basis. Counting stock-based compensation, Twitter's net loss was $511.5 million, up from $8.7 million a year earlier and more than double what analysts had projected.

The company's stock had fallen by almost 18% to $54.31 in after-hours trading -- still more than double its $26 IPO price, however.

Advertising accounted for $220 million, or 90.6%, of revenue, with the balance coming from data-licensing agreements. Mobile accounted for 75% of ad revenue.

On the user growth side, Twitter reported having 241 million monthly active users last quarter, up just slightly from the 232 million it had in the third quarter. Its U.S. growth was more stagnant, up from 53 million to 54 million in the three-month period. That's clearly problematic for Twitter, since 73% of its ad revenue comes from the U.S.

Mr. Costolo described measures Twitter has taken and intends to take to make the service more welcoming to new users and more "indispensable" to existing ones.

For example, it introduced "media-forward timelines" in October, which effectively made Twitter look more like Facebook by causing photos and the first frame of Vine videos to display in users' streams without requiring them to click a link open.

"By bringing the content of Twitter forward and pushing the scaffolding of the language of Twitter to the background, we can increase high-quality interactions and make it more likely that new or casual users will find the service as indispensable as our existing core users do," he said.

In an effort to make Twitter more conversational for a broader swath of people, it also introduced in-line social actions in October, letting users reply, retweet, or favorite tweets from within the tweet itself.

Mr. Costolo said that those changes had already juiced engagement last quarter, and favorites and retweets had gone up 35% since they were instituted.

Growth stalls
He also said that a simpler user onboarding process and native mobile sign-up were in the works.

"It's important to realize, however, that it will be a combination of changes introduced over the course of the year that we believe will begin to change the slope of the growth curve," he said.

Another data point Twitter released -- total timeline views, or the number of times users refreshed their Twitter streams -- was a red flag that pointed to dwindling user engagement. It reported 148 billion timeline views, down from 159 billion in the previous quarter.

However, Mr. Costolo had an explanation, which was that users are refreshing their streams less often because of product changes -- such as the "in-line social interactions" among users who reply to each other -- that are intended to increase engagement with tweets.

"[Threaded conversations offer] a better experience for existing users and helps new users grasp the conversational nature of the platform," he said.

Ads boom
Twitter's insertion of photos into users' streams has also been a boon to its ad business. Chief financial officer Mike Gupta reported that the number of total ad engagements -- including favorites, retweets and replies -- were up 70% last quarter over the previous one, driven by the introduction of media-forward timelines. For advertisers, that change meant that they could effectively show higher-impact display ads on Twitter by attaching photos to their promoted tweets.

It's a key metric for Twitter, since the company charges advertisers on a per-engagement basis, and they pay nothing for mere impressions.

The cost per engagement of ads in Twitter's auction-based system was down 18% last quarter, however. But Mr. Gupta said that was "more than offset" by the increase in engagements.

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