Twitter value down $8 bn on slowing growth
07 Feb 2014
Twitter's value took a $8-billion hit yesterday, losing over a fifth of its market capitalisation amid fears it could end up as another dotcom disaster.
The social network, which went public last November, disappointed investors with its first set of results that revealed a dramatic slowdown in growth.
Revenues at the social network were up more than double at $655 million in 2013, while losses spiraled over eight-fold to $645 million. However, the real cause for concern was the number of people using the social network, which was up just 30 per cent as against 39 per cent in 2012.
The slowdown led to concerns that Twitter would struggle to raise revenues as rapidly as it hoped, and that it could fall out of favour altogether, following the trajectory of social networks like MySpace and Bebo before it
The Telegraph newspaper quoted Sam Hamadeh, the founder of PrivCo, a US financial analysts firm specialising in unlisted companies that had studied Twitter for years, as saying that it remained a robust business but that its $36 billion valuation the day before the results was in ''nosebleed'' territory.
He added that the company was being valued on the expectation its revenues would grow 100 per cent annually for the next five years or more.
However, as an audience-driven company, Twitter could not mathematically expand its ad revenue by 100 per cent when its audience was growing 16 per cent he said. He added it was not happening.
Monthly active users stood at 241 million in the fourth quarter, up 30 per cent from 185 million a year earlier, and slower than 39 per cent in the prior period, Irish Independent reported. Usage too failed with 148 billion views of Twitter timelines as against 159 billion views in the third quarter.
Chief executive Dick Costolo said in an earnings call that he was focused on reversing the trend.
The results led to concerns that Twitter's easy growth phase was coming to an end. It was only a year ago, Twitter, which began in 2006 and lets people communicate through 140-character messages, was adding new users at rates of over 60 per cent a year, and timeline views were soaring.
If the usage continued to fall and new members joined more gradually, the unprofitable company might not be able to emerge as a mainstream service like Facebook and might find it difficult to justify its $34.7 billion market capitalisation.
