Dan Nakaso and Jeremy C. Owens says Twitter's high-flying stock came crashing back to earth Thursday, plummeting more than 24 percent after the social network's first earnings report as a public company revealed lingering problems trying to expand its user base.
Some industry analysts, such as Arvind Bhatia at Sterne Agee, downgraded Twitter to "underperform" Thursday after earnings results that "are likely to raise questions on how mainstream the Twitter platform can be in the long term." .
In Twitter's first quarterly earnings report since its November 2013 initial public offering, analysts expected the company to report that it had 249 million monthly users. Instead, Twitter had an average of 241 million monthly users -- a 5 percent increase from the third quarter.
Karsten Weide, vice president of media entertainment for IDC, called Twitter's sluggish user views "very worrying."
"Twitter's stock was going down because even though revenue is growing very nicely, its user numbers are not," Weide said. "The concern is that users may not seem to think that there is enough utility to adopt the service. And the market is catching up."
Twitter stock closed Thursday at $50.03, down 24.2 percent, and hovered below $50 in after-hours trading -- a long way from its Dec. 26 peak of $73.31.
Brian Blau at Gartner said, "Clearly investors had overly ambitious expectations for Twitter. Maybe they were overly ambitious in reading the tea leaves and didn't read them right."
Financially, Twitter beat analysts' revenue expectations, with a net loss of $511.47 million, or $1.41 a share, on revenue of $242.68 million. That represented a revenue gain of 116 percent from the same quarter a year ago. After adjusting for one-time charges, Twitter reported profit of $9.77 million, or 2 cents a share.
Also on Thursday. Mountain View's LinkedIn reported a solid financial performance that beat Wall Street expectations. But the online professional networking service indicated its growth is also slowing, worrying investors.
As a result, shares of LinkedIn were down more than 8 percent in after-hours trading Thursday.
During Twitter's conference call Wednesday, CEO Dick Costolo assured analysts that Twitter will work to make the service easier to understand for new users to try to expand its user base.
"We have a very, very clear road map across a number of dimensions that we will use to drive interaction and engagement and make it easier for a broader audience to get Twitter," Costolo said.
"Twitter's value is in the future profit," said Roger L. Kay, founder and president of Endpoint Technologies Associates. "But as it gets overheated, at some point some people might say it's not being supported by anything that looks like real earnings."