What's going on?

Twitter�s stock price fell almost 15% on Thursday after it reported stagnant user growth versus the previous quarter (tweet this). Ouch!

What does this mean?

The good news is that Twitter�s revenue and profit were both higher than Wall Street was expecting. However, its number of �monthly average users� was flat versus the previous quarter. After a few quarters of growth, investors were getting excited that Twitter might have reinvigorated itself (prior to Thursday, the stock was up 40% since mid-April). However, the latest numbers reversed that sentiment.

Why should I care?

The bigger picture: Investors love growth, and are repulsed by a lack of it.

Stocks that exhibit high revenue (or user) growth, particularly the likes of Facebook, Amazon and Netflix, have had an absolutely stellar year. Twitter had become a junior member of that club over the past few months following a few quarters of renewed user growth. The stock shot higher as investors surmised that Twitter was once again scaling up. But, as investors question the validity of that presumption following Thursday�s results, Twitter risks being expelled, once again, from that lucrative club.


For markets: The optimistic argument centers on a greater number of dedicated users.

If users log on a few times a month, they aren�t worth much to advertisers, which are Twitter�s customers. However, the users that do repeatedly engage each day with Twitter�s content not only receive multiple ad impressions, but also generate lots of data that Twitter can use to improve the effectiveness, and thus value, of its ads. Twitter�s daily active users were up 12% versus a year ago, which is perhaps the silver lining in the results (management certainly tried to spin it as such). The problem is that, although Twitter may be improving the quality of the pie (i.e. its users), it�s not growing the pie�s size � which puts a limit on Twitter�s potential.