Twitter Stock Plummets 13 Percent on Slow User Growth

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Twitter CEO Jack Dorsey

This is Twitter's first earnings report since co-founder Jack Dorsey took over as permanent CEO.

Twitter stock plunged during after-hours trading Tuesday after the company reported continued slow user growth during the third quarter. 

The San Francisco-based company reported quarterly revenue of $569 million, up more than 57 percent from the same period last year, and earnings of 10 cents per share minus some expenses. Both metrics beat Wall Street's projections. Analysts had been expecting revenue of just under $560 million and earnings of 5 cents per share excluding certain expenses, according to Thomson Reuters. 

But Twitter missed on user growth. The company had 320 million average monthly active users, up 11 percent year-over-year. That's below the 324 million that Wall Street was expecting and it represents only 4 million new average MAUs since last quarter. Excluding users who Tweet via texting, known as SMS fast followers, Twitter average MAUs grew just 8 percent to 307 million.

Twitter is projecting that revenue during the fourth quarter will be in the $695 million to $710 million range, which falls below Wall Street's expected $740 million. 

This was Jack Dorsey's first earnings call since being named permanent Twitter CEO in early October. He also led the earnings call in July when he was interim CEO following the departure of Dick Costolo. 

In the short time since he was named to the position, Dorsey has overseen the launch of Twitter Moments, a new feature that aggregates tweets about real-time news and other stories happening on the platform, and announced plans to lay off more than 330 employees, or approximately 8 percent of the company. Twitter has been plagued by slow user growth and Dorsey sees these moves as a way to simplify the service to better position it with potential new users. 

During the call, Dorsey talked about the early performance of Moments, noting that Twitter would be advertising the new feature during a TV spot in the MLB World Series, which kicks off Oct. 27.

"Moments represents a fundamental shift in our thinking," said Dorsey, explaining that it does not organize Tweets in reverse chronological order to require someone to follow an account before seeing the posts. He added that it is one of many initiatives planned over the next year to "make Twitter easier to understand." 

The earnings call will also serve as preparation for Dorsey as he plans to take his other company, payments startup Square, public. Investors are likely to ask about how he plans to split his time between running both companies.  

Twitter shares were trading down as much as 13 percent during after-hours trading following the earnings release but settled down about 11 percent during the earnings call. The company's shares closed out the day up 45 cents, or a little more than 1 percent, to $31.34 on the Nasdaq. 

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