Twitter shares plunge on revenue miss

Jessica Guynn | USA TODAY

SAN FRANCISCO — Twitter shocked Wall Street twice on Tuesday.

And investors made the company pay.

Shares of the social media company plunged after it reported first-quarter revenue below Wall Street estimates and its own guidance and issued a disappointing outlook for the current quarter and for the year.

Compounding the mounting challenges facing Twitter, trading in its shares was halted after quarterly results leaked before the market closed. New Jersey research firm Selerity reported the company's results — ironically — in a series of tweets, forcing Twitter to rush out results.

Shares of Twitter TWTR fell as much as 20% in regular trading and closed down 18% to $42.27. They tumbled again in after-hours trading.

While the premature release of its earnings report was an embarrassing blip for Twitter management, slowing revenue growth is the kind of serious business challenge that is sure to weigh heavily on the stock and may renew calls for the resignation of Twitter CEO Dick Costolo.

Even as Twitter has lagged Facebook in popularity and struggled to attract new users, the "bright spot" was its ability to wring more advertising revenue from the users it already had, said Wedbush Securities analyst Shyam Patil.

"When people talk about a positive thesis for the stock, they talk about the strong revenue results it has shown since it went public. Before you had strong monetization and weak users. Now potentially you have weak revenue and weak users," Patil said. "It's going to be hard to find a bright spot now."

Twitter revenue was $436 million in the first quarter, well below estimates of $456 million.

Twitter blamed the shortfall on its "direct-response" advertising products that help advertisers communicate directly with customers in real time.

"Revenue growth fell slightly short of our expectations due to lower-than-expected contribution from some of our newer direct response products," Costolo said in a written statement.

It was a tough day for a company already under intense scrutiny as it seeks to reinvigorate user growth and increase sales.

Twitter continued to lose money in the first quarter, reporting a loss of $162 million, or 25 cents a share, compared with a loss of $132 million, or 23 cents a share a year ago.

Excluding stock-based compensation and other expenses, the company reported a profit of $46.5 million or 7 cents a share. Wall Street had expected 4 cents a share.

For the second quarter, the company said to expect revenue between $470 million and $485 million, below analyst estimates of $538 million.

For the full year, the company said to expect sales of $2.17 billion to $2.27 billion, significantly lower than Wall Street estimates of $2.37 billion.

Twitter said that 302 million people used its service at least once a month in the first quarter. That's up from 288 million people in the previous quarter. But monthly active users on mobile came in at 241.6 million, below expectations of 243 million.

Not all analysts are down on Twitter. Pivotal Research Group analyst Brian Wieser said his views remain "mostly unchanged, if slightly diminished." But he did lower his price target to $50 from $54.

"Twitter's long-term potential as a differentiated niche offering in digital advertising is mostly unchanged. Our valuation is dependent on expectations that Twitter can capture a growing share of global digital advertising," Wieser said.

TRADING HALTED AFTER EARLY RELEASE

Twitter blamed the premature release of its earnings on Nasdaq which manages its investor relations site. Nasdaq-owned Shareholder.com reports that it inadvertently released the earnings early.

"We asked @nyse to halt trading once we discovered our Q1 earnings numbers had leaked, and published our results as soon as possible," the San Francisco social media company said in a tweet.

Selerity said it got the results from Twitter's investor relations website and then used Twitter's own service to broadcast them.

"No leak. No hack," the research firm which crawls the Web for financial data said.

The inadvertent earnings release created chaos in what is normally an orderly release of information.

"This happens every once in a while. It's unfortunate, but Twitter responded and released results as soon as they were aware," Patil said.

But the surprise earnings release "probably didn't help" Twitter, he said.

"It probably led to a more exaggerated move," Patil said. "From a positive standpoint, theoretically the bad news from the results should already be in, so if they are able to give anything incrementally positive on the earnings call, it could end up helping them."

In other news, Twitter said Tuesday it would buy TellApart, an advertising technology company.Twitter did not release financial terms of the deal.

Twitter also said it was making its ads easier to buy through a partnership with Google's popular DoubleClick advertising platform. Later this year marketers will be able to buy ads on Twitter though DoubleClick.

Twitter struck an earlier deal with Google to give the Internet giant real-time access to tweets so it can display them in search results.