Breakingviews: Twitter will need more than just user growth for investors to stick around

Published Wed, Apr 26 20173:05 PM EDT

Breakingviews

Jennifer Saba

Twitter has undeservedly attracted a bunch of new followers. The struggling social-media company touted surprise user growth as evidence it can get back on track under moonlighting Chief Executive Jack Dorsey . Revenue, however, fell eight percent in the first quarter, a first since Twitter went public in 2013, as advertisers grew skeptical. Although it remains a long way from its early 2014 peak, Twitter's market value shot up 12 percent on the morning after delivering its results on Wednesday. In the absence of any clear financial rationale, investors seem to have seized on the ephemera of eyeballs. More from Breakingviews : Gucci shows up rivals – and analysts Monthly users of Twitter grew six percent from a year ago to 328 million. So-called daily active users also accelerated 14 percent. And while the latter metric is the preferred yardstick, Twitter also doesn't disclose the actual figures. Maybe these newfound tweeters can help the $11 billion company persuade brands to give the service a try. For now, the sales momentum suggests that will be a tall order. Growing competition also will make matters tougher for Twitter, whose CEO's attention is divided by another job running Square , the $6.8 billion electronic-payments outfit. Instagram , for instance, also crowed on Wednesday that it had reached 700 million monthly users, or more than twice as many as Twitter. Parent company Facebook doesn't even include the photo-sharing app in its social-network count of nearly 2 billion. Meanwhile, newly listed Snap is expected to double revenue by 2018 to $2 billion, according to Thomson Reuters data. That's not far from the $2.5 billion foreseen for Twitter. Even though Twitter's losses are narrowing, the bottom line isn't expected to grow anytime soon. It keeps shelling out stock-based compensation equivalent to more than a fifth of its operating costs, one of the highest proportions around, according to UBS . Unless the overall improvement becomes notably more substantive, the company's financial tweeps may soon take flight just as quickly as they fluttered in. For more independent commentary and analysis from Reuters Breakingviews, visit breakingviews.com

Jack Dorsey, co-founder and chief executive officer of Twitter.

David Paul Morris | Bloomberg | Getty Images

Although it remains a long way from its early 2014 peak, Twitter's market value shot up 12 percent on the morning after delivering its results on Wednesday. In the absence of any clear financial rationale, investors seem to have seized on the ephemera of eyeballs.