©2015 Bloomberg News
NWWHJ6SYF01V

(Bloomberg) — Twitter Inc.’s turnaround isn’t going to be easy.
Even as Jack Dorsey has sought to be candid about the company’s challenges, Twitter’s results continue to fall short of expectations, with a fourth-quarter sales outlook that may miss estimates and another slowdown in user growth. The shares plunged 13 percent.

Dorsey, who took over as chief executive officer earlier this month, has sought to keep expectations low. While Twitter is a popular gathering place for celebrities, politicians and journalists sending and sharing 140-character posts, the co- founder is focusing the company’s efforts on reaching a broader audience. Dorsey is also imposing more discipline, cutting 8 percent of the workforce to increase efficiency and hiring an executive chairman from Google to improve the board’s oversight.

“Twitter remains a wait-and-see story,” said Paul Sweeney, a Bloomberg Intelligence analyst. “Investors were hoping that this quarter would finally get the stock out of the doghouse.”

Twitter Users

Revenue will be $695 million to $710 million, the San Francisco-based company said in a statement Tuesday. That compares with analysts’ average projection for $741.6 million, according to data compiled by Bloomberg.
In the third quarter, when Dorsey was still interim CEO, the company’s user base grew 11 percent to 320 million, compared with a forecast for 324 million and growth of 15 percent in the prior period. In the U.S., the world’s largest advertising market, Twitter’s user count remained flat at 66 million.
“The lack of meaningful user growth will clearly be a long- term challenge for Jack Dorsey and his team,” Sweeney said.

Twitter shares slumped to $27.20 in extended trading, after rising 1.5 percent to $31.34 at the close in New York. The stock has slipped 13 percent so far this year.

Twitter’s third-quarter net loss was $131.7 million, compared with $175.5 million a year earlier. Excluding some items, profit was 10 cents a share, beating analysts’ average estimate for 5 cents. Revenue rose 58 percent to $569.2 million.

Dorsey remains CEO at payments company Square Inc., which is pursuing an initial public offering soon. Despite his other job, Dorsey has made big changes at Twitter in the weeks he’s been CEO. Besides the job cuts and chairman appointment, he’s also given a third of his shares to the employee equity pool, hoping to improve recruiting and retention.

Yet, in an earnings call with investors, Dorsey gave no indication that Twitter’s troubles were going away soon. The CEO declined to get into the details of the company’s product road map, only saying that he wanted his teams to focus on making Twitter easier for more people to understand. The company said it was too soon to predict any uptick in user growth.

It’s been less than a month since Dorsey unveiled Moments, a new product that organizes tweets, pictures and video around a few live events that people can follow. The feature is aimed at making it easier for casual users to tap into Twitter’s vast pool of content, without having to go through the site’s usual process of finding people to follow. Twitter has already started offering advertising on Moments.

Twitter Crossroads

Twitter is also working to redefine its audience. Since its 2013 initial public offering, the company has been scrutinized by investors for its slowing user growth. Last week the company announced a new, bigger number, saying 1 billion people each month see tweets on sites and apps outside Twitter itself. The company has said that the network of news sites and apps that display tweets will start to provide new advertising space in the fourth quarter.
Twitter may also get some help from some old-fashioned television advertising that will run during the World Series this week.
“Twitter is at a crossroads right now and they need to show extreme discipline,” said James Cakmak, an analyst at Monness Crespi Hardt & Co. “They have to change that conversation about what is Twitter’s audience, and how it will grow.”

To contact the reporter on this story: Sarah Frier in San Francisco at sfrier1@bloomberg.net To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net Reed Stevenson, Tony Robinson, Andrew Pollack