Twitter's 'Spin' On Q1 Earnings May Not Be Enough

In releasing Q1 earnings Tuesday, Twitter (NYSE: TWTR) beat expectations but failed to show a profit. On revenue of $250 million, the company reported earnings per share on a non-GAAP basis, of $0.00. The street had expected a loss of three cents per share and revenue of $241.5 million.

The company also reported 255 million active monthly users up from 241 million the previous quarter. This represents growth of Twitter’s user base of 14 million users or 5.8 percent. Active user growth over the past year has been about 25 percent.

The net result, according to The New York Times, was that Twitter continued to struggle to convince Wall Street that its numbers were indicative of “not-yet-realized” potential. Twitter’s spin--that it had more than doubled revenues and beat its own forecasts and those of analysts was apparently not enough to convince investors.

Following the earnings report, Twitter stock was down more than 11 percent in after-hours trading.

Related: Twitter vs. Facebook - What's Your Social Network For 2014?

Twitter’s inability to add substantially to its user base and to keep users engaged seemed to worry investors most of all.

Arvind Bhatia of Sterne Agee told The New York Times, “They need to prove that they can be a very large-sized platform. Can they get to 500, 600 million users worldwide? That’s what they have yet to prove.”

CNBC echoed that sentiment, pointing out that although Twitter’s growth in emerging markets such as Indonesia was impressive, that might not be enough for investors – or advertisers.

Advertisers, CNBC said, were key. Advertisers demand growth, especially in digital markets where they were reluctant to put their money without significant return.

If investors became convinced Twitter’s popularity was on the decline that could spell trouble for the company. Since its IPO in November, Twitter has struggled to prove itself as a vibrant advertiser-friendly platform.

Sydney, Australia-based Vanja Stace told ABC News, "Twitter has actually been a bit of a time-waster, to be honest." According to Stace, her clients have had better success with Pinterest, Facebook (NASDAQ: FB), and Instagram.

The key, Stace said, was engagement and engagement was higher on those other platforms. Much higher, she said.

Sounding what almost sounded like a death knell Stace added, "It's like MySpace - it's just kind of had its heyday."

Marketing CEO, Jeff Richardson of The Online Circle said he believed Twitter still had potential.

Richardson told ABC, "Certainly there are ways to advertise on Twitter and get a return on investment, but you have to think carefully about why you're doing it and what you're doing."

Whether advertisers would want to go to that much trouble on a platform that appeared to be in decline was the question.

At the time of this writing, Jim Probasco had no position in any mentioned securities.