Twitter Inc. Chief Executive Officer Dick Costolo is getting the company back on track with Wall Street by drawing people to use the service more, sending shares soaring more than 29 percent in early trading.
The microblogging company yesterday reported revenue more than doubled to $312.2 million in the second quarter and user growth, buoyed by World Cup-related demand, jumped 24 percent, topping analysts’ estimates. While the net loss widened to $144.6 million, Twitter forecast sales for the current quarter that exceeded estimates and raised its full-year guidance.
Costolo bolstered the numbers by making a case on the earnings call for Twitter’s opportunities. He said including the audience for tweets beyond its own platform, the company’s reach is more than twice its active user base. Twitter’s World Cup features show what it can do for future events, he added. Costolo said revenue rose mostly because users spent more time on the service, as the product was tweaked to better attract them.
The results and comments are part of Costolo’s comeback attempt for the San Francisco-based company. After two straight quarters of decelerating user growth, which followed Twitter’s initial public offering in November, investors had questioned whether the company’s fastest sales growth was in the past. The CEO responded by gutting Twitter’s executive ranks, including replacing the chief financial officer and operating chief.
“Our main message today was that we’re looking to build, and we know we can build, the largest audience in the world,” Costolo said in an interview yesterday. “We can deliver on that promise.”
Shares jumped as high as $49.95 before the markets opened, after rising 1.7 percent to about $38.59 at yesterday’s close in New York. The stock, which reached a record $73.31 on Dec. 26, had plunged 47 percent since then on concerns that Twitter wasn’t growing quickly enough to justify its valuation. The company is among the most expensive in technology based on projected 2014 sales.
“People who were negative on the company and on the stock now have reason to reconsider and re-evaluate,” said Scott Kessler, an analyst at S&P Capital IQ.
Twitter still faces challenges. Its net loss was more than three times as big as its $42 million loss a year earlier. Total expenses are increasing at a rapid rate, rising to $462.1 million in the quarter from $178.2 million a year earlier. User growth also slipped slightly from a 25 percent increase in the prior period.
Yet Twitter also released numbers showing people are more engaged with the service. Members, which now total 271 million, viewed their Twitter timelines more often, with 173 billion views, up from 157 billion in the prior quarter, the company said.
“The company appears to have allayed investor fears that they can drive user growth and accelerate top revenue growth,” Paul Sweeney, an analyst at Bloomberg Intelligence, wrote in an e-mail.
Twitter said it engaged more users over the quarter because of new tools, such as real-time scoring and voting ballots around the World Cup and new user profiles that mimicked the look of Facebook Inc. Twitter said it was also able to boost capabilities for advertisers and expand that business into more countries.
In an effort to emphasize Twitter’s reach, Costolo said on the earnings call that the service is larger than the monthly active users on its main product, given that some people view parts of the site without logging in.
“The size of our audience on our owned and operated properties is two to three times that of just our monthly active user base, which we believe ranks us among the top 10 largest digitally connected audiences in the world,” he said.
He added that Twitter will adjust its product to make it easier for new users to understand right away, and to cater to people who want to experience live events like the World Cup. Because of World Cup-specific products Twitter created, there were 6.5 billion views of tweets on and off Twitter during a Germany-Brazil game.
Mobile advertising was 81 percent of total ad revenue in the second quarter, Twitter said. International revenue more than doubled, making up a third of total sales.
Twitter said the frequency of its ads in the service is relatively low compared to others in the industry, so it has plenty of room to increase the number of promotions.
Twitter rival Facebook also grappled with investor questions about its business shortly after its May 2012 IPO, causing its stock to slump. The Menlo Park, California-based social network has since quelled the concerns by moving swiftly into mobile promotions, which now make up the majority of its ad revenue.
Facebook’s stock began reviving after a strong set of earnings results in July 2013 spurred its shares to rise 30 percent the next day. Last week, the company’s stock surged to a record after it posted a 61 percent second-quarter revenue increase and net income more than doubled.
Costolo has faced questions from Twitter’s board about how he planned to stem user growth issues, people familiar with the discussions have said. The company this month replaced CFO Mike Gupta with former Goldman Sachs Group Inc. banker Anthony Noto, who helped take the company public. It was the fourth major change among Costolo’s top lieutenants this year, after the exits of COO Ali Rowghani, head of engineering Christopher Fry and vice president of consumer products Michael Sippey.
In April, Costolo hired Google Inc. maps executive Daniel Graf as the new vice president of consumer products, followed by the May appointment of engineering chief Alexander Roetter, who was already at the company. The COO role is going unfilled.
To diversify revenue while it seeks to rev up user growth, Twitter has expanded its ad business beyond its site so that membership issues take less of a toll on revenue. The company now distributes ads to about 1 billion smartphones and tablets through a mobile-advertising exchange it acquired last year called MoPub Inc.
This month, Twitter also agreed to pay almost $100 million to acquire TapCommerce, which targets people on mobile phones or tablets with ads for items they’ve expressed interest in buying around the Internet, urging them to complete the purchase. Twitter also bought CardSpring Inc., which will help shoppers secure deals for items they see in the microblogging service’s ads.
Twitter is still on track to enlarge its digital advertising. The company’s share of worldwide digital ad revenue is estimated to rise to 0.8 percent this year, up from 0.5 percent last year, according to EMarketer Inc. Its slice of digital mobile advertising is set to increase to 2.8 percent this year from 2.4 percent last year, according to the researcher. In total, digital ad spending is projected to reach $140 billion this year, said EMarketer.
Noto said on yesterday’s conference call that Twitter shouldn’t be categorized like other technology companies because it isn’t growing by disrupting an existing business, but by adding a new way of communication.
“I wouldn’t try to characterize it as a media company or a technology company,” Noto said. “We’re using a very simple format with a very complicated technology to be able to become the largest information network in the world.”