Twitter's efforts to engage users yet to fully pay off

Tue Oct 28, 2014 9:36am EDT
 
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(Reuters) - Twitter Inc's efforts to improve user engagement and growth rates are taking longer than expected to gain traction, prompting a wave of rating and price target cuts on the stock.

Twitter's shares fell 14 percent to a near four-month low of$41.80 in early trading on Tuesday. Up to Monday's close, the stock had already fallen about 24 pct this year.

The online messaging service, known for its maximum 140 character "tweets", said on Monday its timeline views per user, a measure of engagement, fell 7 percent in the third quarter.

Twitter's user base also grew at a slightly slower rate of 23 percent in the quarter, raising concerns that the social network was losing ground to new mobile services such as WhatsApp and Instagram as well as to bigger rivals such as Facebook Inc.

The company's user growth rate was 39 percent in the quarter before it went public in November last year.

"User growth is starting to decelerate faster than we previously expected," Nomura Equity Research analysts said.

"While we believe that ad demand continues to outstrip supply, deceleration in monetization on a year-over-year basis is happening sooner than we had expected," they added.

At least four brokerages cut their ratings on the stock, and at least 13 cut price targets.

"All of this (disappointment) is occurring despite almost a year's worth of user interface/product improvements that should have 'mainstreamed' the user value proposition," analysts at RBC Capital Markets wrote in a note to clients.   Continued...

 
A portrait of the Twitter logo in Ventura, California December 21, 2013. REUTERS/Eric Thayer