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Here’s how Twitter could fix its growth problem

Aaron Pressman Yahoo Finance

Can micro-blogging site Twitter (TWTR) get back in investors’ good graces? It’s no easy task for a money-losing company already valued at $22 billion, but there are a few statistical measures that could help investors reassess their negative views.

Shares of Twitter, at $37.93, trade at half the stock’s all-time high from December and below the $44.90 first-day close of its IPO last year. Investors appear to have lost faith in the company’s growth story, fretting that the service won’t become the next Facebook (FB) or grow much beyond its current base of 255 million users who are active at least once a month. It probably doesn’t help that the company had once hoped to hit 400 million monthly active users by the end of 2013!

To be sure, revenue is still increasing at a fantastic rate as a growing number of advertisers see the appeal of sending 140-character messages to consumers. Analysts expect Twitter collected $283 million of revenue in the second quarter, up 119% from the same quarter in 2013. And, even after the stock slide, Twitter appears richly valued at 28 times its revenue, or 141 times next year’s projected earnings.

Twitter’s stock price dove after it reported fourth-quarter earnings that appeared to show growth slowing sharply, even based on some of the non-standard metrics the company created for its IPO. The annual increase in monthly active users, for example, is slowing dramatically, from 40% to 50% a year ago to a projected 22% for the second quarter. And that’s even after the World Cup soccer tournament attracted some 672 million related tweets, according to Twitter.

Another stat once favored by the company, the number of times people check their Twitter timelines, actually decreased 7% in the fourth quarter to 148 billion from 159 billion three months earlier. Views bounced back and gained 6% to 157 billion in the first quarter of 2014.

Now Twitter CEO Dick Costolo is reportedly planning to offer some new metrics to prove just how far and wide a tweet can reach. And he hired former investment banker Anthony Noto to help sell that message.

This is among other possible fixes for Twitter’s growth challenge:

Tackling attrition – The growth of Twitter’s monthly active users may have slowed, but some analysts say plenty of new people are signing up all the time – it’s just that too many existing users are quitting. Almost half of new users leave quickly and another 11% leave within one month, according to a survey by MKM Partners, an equity analyst firm.

People who left said Twitter was too hard to use or they couldn’t find relevant content. Over half the people who left said they’d reconsider if the service was easier to use or there was more relevant content for them. Obviously, Twitter could do more to make the service easier to use and suggest interesting people to follow.

App install ads – Facebook has prospered in part by selling ads on smartphones that can install apps when a user clicks. App developers are willing to pay premium rates for the one-click install ads. Twitter announced its own app install ads at the beginning of July – too late to bolster the second-quarter results, but the company could give an update on the program on its call.

New metrics – As noted, CEO Costolo is planning to unveil some new ways to measure Twitter’s reach and growth, according to a Wall Street Journal report on July 17.

The new metrics will aim to show how many people are exposed to tweets even when they’re not logged into the service. That could include seeing tweets on television or featured in a news story. It might also include people who look at tweets on Twitter’s website without logging into an account. Nielsen offers a total tweet audience metric around TV show discussions, for example, which counts not just the number of tweets but also how many people saw them.

The new measures might help advertisers justify spending a little more, but investors are likely to remain skeptical until Twitter demonstrates it’s growing quickly again – by whatever measure it offers.

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