Twitter numbers paint grim profitability picture

Thu Feb 9, 2017 5:55pm EST
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By David Ingram

(Reuters) - Twitter Inc's (TWTR.N: Quote) desultory earnings report on Thursday show a company with no evident path to profitability, as core costs climb more quickly than revenue while user growth stagnates.

For all the buzz the San Francisco company has created as the preferred platform for U.S. President Donald Trump and other high-profile figures, Twitter has lost more than $1.5 billion cumulatively since it went public in late 2013.

The company has almost $1 billion in cash on hand, and the losses are due in part to employee stock compensation, a non-cash expense. That is little comfort, though, for shareholders who end up footing the bill for those costs in the form of dilution.

Further, the company said it was revisiting core advertising strategies, suggesting a quick turnaround on revenue was not likely. Fourth-quarter revenue of $717 million was well short of analysts' expectations.

The company is "trapped" and could see declining revenue for another year or two, RBC Capital Markets analyst Mark Mahaney said in a client note.

"We believe that only a radical overhaul of the (user interface) and value proposition could potentially grow its user base, but such a step would carry enormous risk in alienating core users," Mahaney said.

Twitter's share price was battered, closing down 12.3 percent at $16.41.

The company's revenue shortfall came even though its cost of revenue - the amount it must spend for hosting the service and sharing revenue with partners, among other things - rose by 40.4 percent to $306 million from a year earlier.   Continued...

A 3D printed Twitter logo is seen in front of displayed stock graph in this illustration picture made in Zenica, Bosnia and Herzegovina, February 3, 2016. REUTERS/Dado Ruvic