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John Murrell/Recode

General


Twitter needs to prove itself to Wall Street — again — and soon.

After a strong initial public offering last fall, Twitter shares have fallen 33 percent as investor confidence was shaken by a mixed fourth-quarter earnings report.

Here’s what to keep an eye on come Tuesday, when Twitter will report its first-quarter financials.

User Growth

The biggest pain point: Twitter grew by only nine million users in its first quarter as a public company.

On Tuesday, it will need to prove that it can grow much faster than it has in the past two years. RBC analyst Mark Mahaney figures Wall Street will be pleased if Twitter says it has more than 265 million users, and disappointed if it says it has less than 255 million.

The good news: The revenue side of the business is doing well so far. Twitter revenue was higher than expected last quarter, and the company is getting more money from each person using Twitter. Analysts expect a loss of three cents per share on revenue of $241 million, the latter number up about 110 percent compared to the same period last year.

But again, that revenue growth will eventually hit a ceiling as long as Twitter’s user growth continues to slow.

It’s not for lack of trying to plug the holes. In the past three months, Twitter has introduced a slew of small product tweaks and different types of emails to users, all attempts to make Twitter more attractive to the layperson. When the report drops on Tuesday, keep a sharp eye on whether those changes have any impact on retention and growth.

MoPub

Twitter saw the writing on the wall with its user growth problems. That’s why it bought MoPub, a mobile advertising network, last year.

The case for MoPub, in short: Even if user growth continues to stall, Twitter bought itself a safety net. MoPub makes money by serving ads to other mobile apps that aren’t owned by Twitter. And though revenue is likely still small, the company’s growth curve is steep. So as long as outsiders keep buying those ads, Twitter can take at least some pressure off its own user growth numbers.

Twitter has trumpeted MoPub recently, and just started letting advertisers buy ads on both Twitter and MoPub using the same software.

I’d expect more MoPub hype on Tuesday’s conference call, especially considering it’s the day before Facebook unveils its own mobile ad network.

The Lockup

Another elephant in the room Twitter needs to deal with: The company’s first major stock lockup expires on May 5, making more than 500 million shares eligible for sale for the first time.

It’s a good thing for insiders and early employees, who for the first time will get a chance to cash out their shares on the public market.

But it’s making long-term shareholders very nervous. If any of the major institutional holders decide to sell a large amount of shares, it could spark a major selloff in the market and set the share price tumbling.

Twitter has already started to try to deal with this. Earlier this month, CEO Dick Costolo, Evan Williams and Jack Dorsey — some of Twitter’s largest individual shareholders — pledged that they had no plans to start selling their shares anytime soon. And while few other institutional investors were willing to go on the record, I’m told other big shareholders like Rizvi Traverse Management and J.P. Morgan wouldn’t be selling, either.

I expect Twitter to do more to reassure investors on Tuesday.

Wild Cards

There are a few smaller issues that I imagine Costolo won’t touch on Tuesday’s call, but I’m still holding out hope.

Among them: Twitter Commerce. We saw a first look at what it could look like back in January, and it has been working on a deal with payments company Stripe. It would be nice to get an update here.

There’s also Vine, the video app that Twitter owns but has yet to directly monetize. Perhaps, like Instagram, Twitter will someday stick ads into the Vine feed.

And lastly there’s the Gnip acquisition, which brings another direct revenue stream — however small — in house. I doubt Costolo will talk about this much, since the transaction occurred during this quarter, but I’d love to hear about Twitter’s plans for the service.




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