Twitter’s potential growth questioned as shares drop

Twitter is having a hard time convincing investors it's a company with a future, as its share price has dropped by 10 per cent despite the social networking site's revenue comfortably beating targets.

After the closure of the stock markets, Twitter announced revenues of $250 million (148 million) for the first quarter of 2014, a 119 per cent increase year-on-year. The figures were better than expected by analysts and spurred on, according to chief executive Dick Costolo, "by increased engagement and user growth."

Even though the revenue numbers are encouraging, the company also posted a $132 million (78 million) net loss for the quarter, as well as a user growth of 14 million, an increase on the previous quarter.

Timeline views, a measure of how many times a user refreshes a page, increased 15 per cent year-on-year to 157 billion but fell below the predicted 159 billion.

"There are few companies with this kind of reach," added Costolo, despite stalling growth numbers. "I am really happy with the engagement in Q1."

With social media becoming an ever more competitive market, Twitter is being scrutinised for its growth potential and profitability. With the declaration that its advertising revenue is also down, from $1.49 to $1.44 (89p to 86p) per 1,000 timeline views, the viability of the social network as an advertising platform may start to be questioned.

"Twitter may have doubled its quarterly revenue and beaten analyst expectations but akin to iPhone sales for Apple, user growth is the key tenet for the social media company," Chris Beauchamp, market analyst at IG, said.

"Growing a mere 25 per cent to 255m, lower than the 30 cent growth achieved the previous quarter, tends not to inspire investors looking for a profitable company with big potential. Shareholders reminiscent of the demise of MySpace will be conscious of how a popular trend can quickly lose its appeal."