Jack Dorsey, CEO of Square and CEO of Twitter, arrives at the New York Stock Exchange for the IPO of Square Inc., in New York November 19, 2015. Square Inc priced shares at $9 for its initial public offering, about 25 percent less than it had hoped, as it struggled to win over investors skeptical about its business and valuation before trading begins on Thursday. REUTERS/Lucas Jackson
REUTERS/Lucas Jackson
What happened?
SURPRISE

Twitter now has a problem that’s way worse than slow user growth

By Alice Truong

Well, that was unexpected.

Twitter today (Feb. 10) reported no growth in new monthly active users in the holiday quarter from the prior quarter. The company ended 2015 with 320 million monthly active users. Those numbers are disappointing in themselves.

But when you take a closer look, it’s far worse than that. Last April, the San Francisco company said it would change the way it calculates monthly active users, including what it calls “SMS Fast Followers,” or people who access the social network entirely via text message. When you exclude these SMS users, Twitter actually saw negative user growth, ending the fourth quarter with 305 million monthly active users—2 million fewer than the third quarter. In its shareholder letter, the company noted that in January its monthly active user numbers did “bounce back to Q3 levels.”

Investors were clearly not happy with the lack of progress. Shortly after the earnings release, Twitter shares momentarily plummeted 12%. The price rebounded as investors digested the news.

In the fourth quarter, Twitter narrowed its net losses, which totaled $90 million, by 28% year over year. It generated $710.5 million in revenue, up 48% from the year-ago period.

Including SMS users helped Twitter obscure its slow—and now negative—growth, but the company’s coming to the realization it’s only complicating matters. In its shareholder letter, the company said it would stop counting SMS Fast Followers in its MAU calculations. SMS Fast Followers, however, will be factored into its total audience count, which also includes its logged-out users, or those who visit Twitter without signing up for or logging into their accounts. Twitter said its total audience comprised more than 800 million visitors in the fourth quarter.