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Twitter's Shares Drop, Indicating 284 Million Users Just Aren't Enough

Q3 growth disappoints

Twitter CEO Dock Costolo is focused on user growth. Photo: Getty Images

Twitter shares dropped about 10 percent after the company revealed its third quarter financial performance, with user growth slower than expected while ad sales rose.

San Francisco-based Twitter accrued 284 million monthly active users (MAUs) from July through September, and, by comparison, Facebook now has 1.3 billion MAUs. Sterne Agee analysts predicted Twitter would show 285 million active users.

"We have to continue to grow our monthly active users and make it increasingly a daily use case for them," said Dick Costolo, Twitter CEO, during an earnings call late Monday afternoon. He pointed to creating better rich media tools and more functionality for the direct-messaging feature. Also, Costolo mentioned further developing tools like Digits to ease onboarding processes for consumers to join the social network as well as making their timelines as immediately relevant to them as possible.

"Expect to see this on mobile in short order," he added.

Twitter gained 13 million new users in Q3—though, in the three months prior, it grew by 16 million.

"Expectations had been creeping up on monthly active users," said analyst Robert Peck of SunTrust  Robinson Humphrey. Peck anticipated a lower user count, but said many of his investor clients were looking for more.

Ad Biz Gains Strength

Twitter is trying to build on its devoted fan base with a strategy that could bring wider appeal. It has faced criticism—which Costolo was attempting to address with his aforementioned expansion plans—that the platform is complicated and inaccessible for people not accustomed to the Twitter culture.

Still, brands are flocking to it, and they are paying to take part in the maturing ad business. That part showed well last quarter with revenue more than doubling compared to last year at this time to $320 million. That figure beat analysts' expectations.

Eighty-five percent of Twitter’s ad revenue, $272 million, was from mobile, marking a $48 million increase when compared to the second quarter.

Lastly, Twitter said that Q3 Promoted Tweet sales were up globally by more than 130 percent year over year.

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