Twitter follows Facebook with social media share plunge

Co-founder Jack Dorsey concedes financial damage of efforts to make Twitter ‘healthy’

Twitter’s monthly active users fell by one million in the second quarter from the first to 335 million.

Twitter’s monthly active users fell by one million in the second quarter from the first to 335 million.

 

Twitter’s shares followed Facebook into a sharp fall on Friday as worries that social media companies are facing a reckoning that will limit their profits sent a tremor through Wall Street.

The social networks have been dented by concerns over the limits of their users’ attention and the potential fallout from cleaning up their acts after recent scandals.

Twitter’s stock was down 19 per cent on Friday afternoon, just 24 hours after Facebook’s shares shed 19 per cent in the biggest one-day loss of value in US stock market history. The service, beloved by Donald Trump, said its user numbers had fallen from a year before as it weeded out fake accounts and put more effort into producing a “healthy” service.

This week’s investor flight from social media came in the face of evidence that both companies’ businesses were performing strongly, suggesting that advertisers’ confidence has not been shaken.

“I don’t think this ushers in the end of social media as we know it,” said Youssef Squali, an analyst at SunTrust Robinson Humphrey. Instead, he said the social networks were suffering “major growing pains” as the industry moves from “the Wild, Wild West in their handling of data”, arguing a period of adjustment lies ahead.

The stark divide between political scandal and surging business prospects has brought sharp volatility to the social media sector all year. Facebook’s shares had jumped more than 40 per cent from the depths of its Cambridge Analytica crisis four months ago, adding $230 billion (€197 billion) of stock market value, before reversing course to shed more than $120 billion this week.

Growth rate

The company’s stock slumped on Thursday after it warned of a rapid slowdown in its growth rate for the rest of this year, and was down another 1.8 per cent in late Friday trading. “There are limits to growth. The bigger they are, the closer they are to those limits,” said Brian Wieser, an analyst at Pivotal Research.

Some analysts, however, said that investors were more worried about a slide in Facebook’s profitability as it tried to deal with recent scandals. These have included the vulnerability of its network during the 2016 US presidential election to fake news and efforts by Russia to influence the outcome, as well as the massive data leak to Cambridge Analytica that came to light this year. The company has said it will double the number of employees working on safety and security to 20,000 this year.

The social media wobble has come despite signs that the main engines of growth that have made the consumer internet Wall Street’s hottest sector are largely intact. Google, which along with Facebook has created almost a duopoly in digital advertising, started the week by reporting stellar growth in its mobile advertising, pushing its shares to a new record high.

Surging profits from Amazon, meanwhile, lifted the ecommerce company’s shares by 3 per cent in early trading on Friday, though they later slipped back. Hopes that Amazon will extend its reach into an increasing number of new markets have added $335 billion to its value this year, putting it within 4 per cent of Apple, whose $955 billion market capitalisation still makes it the world’s most valuable company.

Spam clearance

Twitter revealed on Friday that its efforts to rid its platform of spam has led it to eject millions of accounts. New European privacy rules that have pushed users to agree to new policies before logging in also had an impact.

Jack Dorsey, Twitter’s co-founder and chief executive, said the numbers “reflect the work we’re doing to ensure more people get value from Twitter every day”. The number of average monthly active users fell to 335 million in the second quarter, down by one million from the first three months of the year.

The company said removing fake users had subtracted about three million monthly active users and would lead to a future loss in the “mid-digit single millions”. However, the number of monthly users was up from 326 million in the same quarter a year earlier, while daily active users rose 11 per cent year on year.

In its quarterly release, the company noted that its clean-up efforts were paying off, with its early experiments showing an 8 per cent drop in abuse reports from conversations. Mr Dorsey said the push to make Twitter “healthy” would be better for its long-term growth, even if it cost engineering resources in the short term.

Yuval Ben-Itzhak, chief executive of social media marketing firm Socialbakers, said Twitter was taking “important steps”. “While it’s important for brands and influencers to have a solid follower base, the key is quality, not quantity,” he said. – Copyright The Financial Times Limited 2018