Twitter needs more followers as user growth lags despite rosy Q2 earnings

Twitter released Tuesday its second quarter financial results, and while they met Wall Street expectations they were not impressive enough for investors.

It had revenue of $502 million, up 61% from a year ago and higher than analysts' forecast of $481.3 million.

Profit was at $49 million, excluding compensation and other expenses. That's up 2 cents a share from a year earlier to 7 cents. It was also higher than analysts' forecast of 4 cents a share.

Twitter's CFO Anthony Noto cited improvements in advertising targeting and measurement as among reasons for growth.

Following announcement of the figures, Twitter's stock soared 12% in after-hours trading. But an hour later, it fell almost 6% from its previous close as company executives warned of challenges ahead.

User growth was weak, and there are signs it is not going to get better anytime soon.

Average monthly active users were up only 8 million over the past three months, not high enough for some investors, who were expecting a growth of 16 million.

And engagement is also falling, with less than half of regular users checking the site daily.

"What shocked the stock after hours is that despite all of the product improvements, people were less active now than they were seven months ago," Richard Greenfield, an analyst with BTIG Research told the New York Times.

Of the new users, six million use text messages to access the service. In terms of advertising, they are less valuable than smartphone users. Nearly 90% of Twitter's total ad revenue come from mobile ads.

"Our Q2 results show good progress in monetization, but we are not satisfied with our growth in audience," said Jack Dorsey, Twitter's interim CEO.

Twitter has been having a hard time competing against Snapchat, Instagram, and WhatsApp which are gaining popularity among social media users.

Competition for ads is tougher with Facebook whose user number is nearly five times bigger than Twitter. Per user value is nearly twice as much.

The company says its ad load is currently only about a third of its future potential.

To realize that, Twitter is working on improving user experience by simplifying its service and communicating better with audience.

Before the end of the year, the company will run a major marketing campaign called Project Lightning to lure people into using the site when big news breaks.

Content will be curated in manner that will facilitate easy tracking of live events like the World Cup as well as new TV show episodes.

"You should expect Twitter to be as easy as looking out your window to see what's happening," said Dorsey.

But until such product is launched, steady user growth is not expected, especially with its search for a permanent CEO still in limbo.

The San Francisco-based company has been looking for a long-term CEO, following the resignation of Dick Costolo this month in the face of investor complaints over anemic company performance.

Dorsey, who is also serving as chief executive of payments start-up Square, declined to say whether he was in the running. But the interim Twitter CEO said he would do "whatever it takes in whatever role to make both companies successful."