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SAN FRANCISCO — Twitter is used to being the social media service at the center of public conversation.
But increasingly it's finding itself the subject of that conversation — and not in a good way.
From ominous headlines — "The End of Twitter" — to trending hashtags — #RIPTwitter — people can't stop talking about the seemingly never-ending litany of woes plaguing Twitter, from slowing rates of user growth to executive churn. And Jack Dorsey, the co-founder charged with reviving the one-time high-flier, appears no closer to making the sweeping changes necessary to turn the company around.
"It's a critical time," says eMarketer analyst Debra Aho Williamson. "There are so many questions swirling around Twitter. Can it grow its user base? Can it continue to increase revenue? What is Twitter trying to be now that one of its founders is back at the helm and trying to change things up? We need to see concrete evidence Twitter is going in the right direction."
The stakes have never been higher as Twitter prepares to report fourth-quarter earnings after the market closes on Wednesday.
Twitter this week saw its shares (TWTR) fall to a record low. At less than $10 billion, Twitter's market cap is about a third of what it was a year ago. With investors fleeing riskier stocks in a volatile market, Twitter could sink even more if earnings disappoint. Shares of professional networking service LinkedIn (LNKD) last week posted its biggest-ever decline on a weaker-than-expected forecast.
"The market is suddenly completely intolerant of companies that don't have a lot of earnings and they are unwilling to give a whole lot of credit to companies that have no growth," said Wedbush Securities analyst Michael Pachter.
Here's what to watch:
REVENUE FORECAST: Twitter is expected to generate $709.97 million in revenue, a 48% increase from the same quarter last year but a deceleration versus 58% in the third quarter, according to S&P Global Market Intelligence.
EARNINGS FORECAST: Twitter is expected to have 12 cents a share, excluding certain expenses, the same as a year ago, according to S&P Global Market Intelligence. Including those expenses, it is expected to post a loss of 17 cents a share.
USER GROWTH: Investors are fixated on Twitter's user growth as a key measure of its prospects.
Last quarter, Twitter said it had 320 million monthly active users, up slightly from 316 million in the second quarter. Excluding users who access the service via text message, the company had 307 million users, roughly flat with the previous quarter. For the December quarter, analysts expect Twitter to report 325 million users, up 1.5% from the third quarter.
"The monthly active users number is probably not going to be inspiring," Pachter says.
Last year, 262 million people around the world used Twitter on at least a monthly basis, research firm eMarketer estimates. This year, that figure will rise to 291 million, an increase of 11.1%. But 2016 will be the last year of double-digit growth in users, the firm forecasts, with the growth rate falling in 2017 to 8.8%.
Investors fear slowing user growth will undercut Twitter's prospects. "It's not like Twitter isn't growing," Williamson said. "But it's not growing enough in that regard."
REVENUE: Not everyone on Wall Street thinks investors should judge Twitter by user growth.
"So many people talk about Twitter as a no growth company. If you look at their revenues, if you look at a number of different metrics, Twitter shows healthy if not robust growth," said S&P Global Market Intelligence analyst Scott Kessler.
Pachter says a revenue beat is possible. Twitter has done it in five out of six quarters. He's looking for about $715 million in fourth quarter revenue, higher than Wall Street consensus of about $710 million.
And Williamson says new ad products are showing promise.
"Twitter is still continuing to show progress on developing new ad products and new ways to generate revenue from advertising," Williamson said. "The thing that is probably going to get Twitter past all of this is refocusing the conversation on the question: Can Twitter make money selling ads outside of Twitter? ... I think they can. Twitter has access to a lot of data and has ways to sell advertising to people based on that data."
The concern: Twitter will not be able to continue to increase revenue as user growth slows. RBC Capital analyst Mark Mahaney said in a recent report that "channel checks and our recent surveys don't provide convincing evidence that a substantial number of advertisers will commit meaningful $s to TWTR."
Also worrying investors: the poor performance of direct response ads, which are designed to drive users to take an action, such as install an app.
PRESSURE ON DORSEY: Since Dick Costolo handed Twitter over to Dorsey in July, the stock has lost more than half its value.
Analysts have questioned whether Dorsey can juggle his dual role as CEO of Twitter and of digital payments start-up Square. They also say they want to see a turnaround vision from him.
"We believe the upcoming earnings conference call could be a 'seminal moment' for Jack Dorsey and the Twitter team," SunTrust Robinson Humphrey analyst Robert Peck wrote in a research report. "He must be able to give employees and Wall Street a reason to believe. Without this, the stock could continue to be under pressure."
Dorsey, who officially took over as CEO in October, has warned investors that changes would not come overnight. And Pachter says investors will give Dorsey more than four months to deliver. "But the impatience will start Wednesday if there is no strategy articulated," he said.
Specifically, investors want to know more about new products and features that have the potential to grow users and engagement and fulfill Dorsey's pledge of lifting Twitter out of its growth slump.
"Twitter needs to talk about the product road map and what Twitter is doing to make the service easier to use and understand and what is going to drive engagement further," Kessler said.
NEW FEATURES: Dorsey has encouraged his staff to question the fundamental features of the service including its 140-character limit and reverse chronological timeline. On Wednesday, Twitter unveiled an algorithmic-generated timeline that will show tweets out of order. Twitter says the new timeline offers a better experience for users who run the risk of missing the best tweets when they are away from the service, especially if they follow a lot of accounts. Longtime users have protested the new feature with the #RIPTwitter hashtag.
EXECUTIVE CHURN: Investors want commentary from Dorsey on executive turnover, reminiscent of his predecessor Costolo. In a single day in January, four executives left the company: Alex Roetter, Twitter's senior vice president of engineering; Kevin Weil, senior vice president of product; Katie Jacobs Stanton, vice president of global media; and Brian “Skip” Schipper, vice president of human resources. Dorsey has yet to name temporary replacements. Also departing that day was Jason Toff, the general manager of Vine who rejoined Google to work on virtual reality.
$3.5 BILLION IN CASH: The company ended the third quarter with $3.5 billion in cash and investments, according to S&P Global Market Intelligence. If the company only burns $8.5 million a year in free cash — as it did the past 12 months — that's enough cash to last 412 years, USA TODAY reported. Kessler would like to see the company repurchase shares or make strategic acquisitions that could jumpstart growth now that valuations for tech start-ups have declined.
NEW BOARD MEMBERS: In October, Twitter appointed Omid Kordestani, Google’s former chief business officer, as executive chairman. Dorsey has said he would bring in more outside directors. Two new board members could be named as soon as Wednesday.
NEW EARNINGS FORMAT: Twitter will release an earnings letter rather than having Dorsey and other executives make prepared remarks about the company's performance on the quarterly earnings call. Instead executives will take questions from analysts during the call and Periscope broadcast.
"Twitter is trying to do a better job of connecting with people by making it more Q&A oriented," Kessler said. "Twitter is about conversation. They are taking a similar approach with the call, letting the investing public drive the conversation, not Twitter. That's probably a good start."
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