Twitter Inc reported anemic user growth during the final three months of 2013 in its first quarterly report as a public company.
Shares dropped more than 11 per cent to $58 US in after hours trading after it reported its monthly active user count was 241 million, up only nine million from the previous quarter of 232 million.
At 3.8 per cent increase, that was the lowest rate of growth since Twitter began disclosing user figures.
At the end of trading Thursday, the shares were trading at $50.03, a 24 per cent drop from the previous day.
Twitter stock listed last November at $26 a share and its stock had jumped to $74 by December, though many analysts believed the company was overvalued. It has been trading in the $60 to $65 range in the past week.
Wall Street is divided on the prognosis for Twitter, with some analysts believing it a potential competitor for Facebook, while others say it is an over-rated social media trend that will soon fade.
Deutsch Bank is bullish on the stock, pointing out that Twitter is finding ways to monetize its product.
'We’ve been saying that one of the problems that Twitter has had is frankly the fact that it’s just not as easy to understand and use as some of the other platforms out there' - internet equity analyst Scott Kessler
But UBS, was one of at least eight brokerages to cut their target prices on Twitter's shares, believing the stock price will fall to the $42 range.
"A lack of mainstream adoption or a more simplified use case was a worry of ours coming out of the IPO and seems to have come to the fore faster than we had anticipated," UBS analyst Eric Sheridan said in a note.
Scott Kessler, senior director of S&P Capital IQ, says Twitter may have to change the metrics it uses to measure engagement, because the recent number are so poor.
"It tells you that user growth is decelerating, timeline views dropped and for the second straight quarter, we’ve seen engagement fall as well," he said in an interview with CBC's The Lang & O'Leary Exchange.
Kessler said Twitter may actually be harder to use than other social media and that could slow its growth.
"We’ve been saying that one of the problems that Twitter has had is frankly the fact that it’s just not as easy to understand and use as some of the other platforms out there," he said.
Twitter's revenue announced Wednesday was not a disappointment, coming in at $243 million, up 116 per cent year-over-year. Twitter reported a net loss of $511 million.
On an adjusted basis, the company says it earned $10 million, or 2 cents per share. Analysts had been expecting a loss of 2 cents per share on revenue of $217.82 million.
For the current quarter, Twitter expects revenue in the range of $230 million to $240 million.