On Thursday, February 06, 2014, Twitter Inc. (TWTR) saw its share price descend by 24%. Investors were disappointed by its earnings report on Wednesday. Twitter conveyed slowed user expansion and timeline views for the fourth quarter. In addition, analysts expected the company to have reached 249 million active users; however, Twitter reported missing that expectation with 241 million.
The plunge came as a surprise because the shares have escalated over 150% since November. The decrease in Twitter’s share price is the direct result of investors’ fears that the company is bumping into a plateau. Nate Elliot, an analyst at Forrester Research stated, “The fact that we’ve seen timeline views per user go down two quarters in a row suggests that it’s more than just a design problem, that they may be hitting a ceiling for their current iteration.”
For the record, Twitter has been consistently compared to Facebook (FB), although, with regard to their Wall Street track record, the two companies couldn’t be more dissimilar. To illustrate, Facebook spent its first 16 months hovering below its initial IPO of $38. However, since CEO Mark Zuckerberg announced a focus on the mobile market, its shares have risen.
On the other hand, Twitter entered the market with a smaller IPO, but a much more steady progression. Unfortunately, Twitter has not made as many updates or acquisitions as Facebook. Investors want to see Twitter transition to something new, much the way Facebook, and even Google continues to do. When Twitter made its debut, it was on the cutting-edge of technology–that isn’t the case today
The company’s CEO, Dick Costolo, will have to show investors some transformative elements. On a recent investor call, Costolo pledged to modify Twitter’s adoption curves, improve Twitter’s messaging platform and utilize advertiser relationships. Whether or not investors will find those things satisfactory remains to be seen.
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