Clock is ticking for Dorsey as Twitter's earnings fail to impress

User growth doesn’t impress as new CEO tries to turn social network around

Twitter's earnings call on Tuesday didn't go quite as investors might have hoped.

That can't be good news for Jack Dorsey, who recently took over -- again - as CEO of the struggling social media company's CEO.

With an underwhelming third-quarter financial report and a dismal forecast for its fourth quarter, the amount of time Dorsey, Twitter's co-founder, has to pull off a rescue could be limited. Very limited.

"The honeymoon is over," said Jeff Kagan, an independent industry analyst. "Dorsey is a heavy hitter but he needs to make Twitter grow with users and earnings. I do think both Twitter and Jack Dorsey are winners, even though the stock does not reflect it yet. The real question is when will the stock start to reflect it?"

On the positive side, revenue for the third quarter of 2015 came in at $569 million. That's an increase of 58% compared to revenue of $361 million in the same period in 2014, Twitter reported on Tuesday.

The company, though, lowered expectations for the fourth quarter, dropping its goal from the $740 million analyst consensus to a range of $695 million to $710 million. The fourth quarter is generally more robust because of holiday advertising and spending.

The bigger problem is lack of growth in Twitter's user base.

Twitter reported that it had 320 million monthly active users for the third quarter, up 11% year-over-year.

However, only in recent quarters did the company begin including SMS Fast Followers -- users who sign up and access Twitter entirely using text messages. Without those new numbers, Twitter's monthly active user base would be 307 million for the third quarter.

"Twitter's third-quarter numbers don't give us a sense of encroaching doom, but there is the sense that they have to change what they are trying to do," said Ezra Gottheil, an analyst with Technology Business Research. "People have to remember that not growing fast is not the same as shrinking, but I don't know how stockholders will see that."

It has been clear that Dorsey has a big job ahead of him in turning Twitter around.

While users turn to Twitter in times of crisis – such as a natural disaster or political upheaval – it's still struggling as a business. Twitter's user growth is slowing, user engagement is slipping and the company's expenses still exceed the amount of money coming in.

For instance, Twitter reported revenue of $1.4 billion for all of 2014, but still lost $539 million for the year.

With Dorsey back in the driver's seat, the company recently made some aggressive moves. Earlier this month, it laid off8% of its workforce, or 336 people.

At Twitter's Flight conference last week, Dorsey reached out to disenfranchised developers and apologized for letting their relationship get complicated and unpredictable. He said he's working to fix those mistakes and pave a new path with third-party developers..

Brian Blau, an analyst with research firm Gartner, said Twitter is moving forward and its numbers need to be seen in that light.

"The fact that they met revenue expectations means Twitter still holds value for advertisers, and the team has been able to efficiently capitalize on the user base, even though it's not growing as quickly as competitors," he added. "Dorsey is moving quickly but, given he has only been in the position a short while, it will be some time before his efforts will have a lasting impact on the company."

Rob Enderle, an analyst with the Enderle Group, noted that Twitter's numbers, particularly its user growth stats, show why the company brought in Dorsey, who is considered a heavy hitter in the industry.

How much time Dorsey will have to get real momentum behind Twitter is up for debate.

"I doubt the honeymoon is over [for Dorsey]. He should be given at least a year," Enderle said. "Turnarounds typically take five years to complete, and CEOs are typically given three unless they really screw up. This one will be particularly tough because Twitter never had a financial model that worked, and there is still a question of whether it even can work."

Join the Computerworld newsletter!

Error: Please check your email address.

Tags twitter

More about GartnerTechnologyTwitter

Show Comments