Growing uncertainty about Twitter's growth and advertising models sent its share price tumbling by eight per cent in after-hours trading yesterday.
The company has now shed 24 per cent of its value since the beginning of the year and 41 per cent since its peak in December 2013.
What can the company do to reverse the downward trend?
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Twitter must add users
During the third quarter of 2014, Twitter had 284 million users who visited the site at least once a month, a healthy sounding 4.8 per cent growth rate, but that was significantly below the previous quarter's increase of 6.3 per cent. That suggests Twitter's growth is now in decline.
User statistics would have been better, said Twitter's finance chief Anthony Noto, but for a bug that prevented some users in Asia from being able to log in. The fault "caused us to lose one to two million users," Noto said.
Even if these stats had been included, investors would still concerned about the company's trajectory, the Wall Street Journal says.
Zach Miners, from Computer World UK says that investors need to see growth increase again: "Twitter needs to add users more aggressively to turn its service into an advertising powerhouse," Miners said.
Last year Twitter accounted for 0.5 per cent of all global digital ad revenues, according to eMarketer, a performance significantly lower than rival Facebook which garnered 5.8 per cent. The financial model for social networks is now well established: users attract advertisers, and advertisers bring in money. Without a growing user base, the company itself will go into decline.
Twitter needs to shore up its advertisers
Twitter's ad numbers are impressive for a company that is only seven years old, says website Re/code. The micro-blogging network is on track to take more than a billion dollars in advertising this year – a huge leap when you consider that just a few years ago it had no ad business at all.
But many advertisers have joined up experimentally, Re/code says, and are not yet committed to the company. "Commitment won't happen until they're convinced they can easily reach lots of people, and to do that Twitter still needs to bulk up."
Another key metric that appears to be in decline is the company's timeline views – the number of times a user refreshed their feed, which is where the majority of Twitter's ads are shown. Even so, Twitter has been able to get more ad dollars per view, bringing in $4.28 per 1,000 timeline views in the US, Ad Age says, which goes some way towards offsetting the problem.
But in spite of Twitter's attempts to monetise its business, many analysts remain unconvinced. Last week, Citibank wrote in a report "While we like the Twitter business, we think [Facebook] represents a more compelling investment."
Twitter must innovate more quickly
Over the past year, Twitter unveiled a number of innovations in a bid to drive growth, including the introduction of a "buy" button to allow users to make purchases from within the app and a simplification of the sign-in process to get users in the door more swiftly.
But some analysts feel that the pace of innovation at the San Francisco-based firm is simply too slow. Forrester Research analyst Nate Elliott told The Age newspaper: "Facebook is constantly giving people new reasons to come back to the site, Twitter needs to do more of that".
Even Twitter CEO Dick Costolo has admitted that the company needs to innovate more quickly: "We have to continue to grow our monthly active users and make it increasingly a daily use case for them," he said during a webcast with investors. "It's more critical than ever to increase our overall pace of execution."
