Twitter Inc's (TWTR.N) desultory earnings report on Thursday show a company with no evident path to profitability, as core costs climb more quickly than revenue while user growth stagnates.
For all the buzz the San Francisco company has created as the preferred platform for U.S. President Donald Trump and other high-profile figures, Twitter has lost more than $1.5 billion cumulatively since it went public in late 2013.
The company has almost $1 billion in cash on hand, and the losses are due in part to employee stock compensation, a non-cash expense. That is little comfort, though, for shareholders who end up footing the bill for those costs in the form of dilution.
Further, the company said it was revisiting core advertising strategies, suggesting a quick turnaround on revenue was not likely. Fourth-quarter revenue of $717 million was well short of analysts' expectations.
The company is "trapped" and could see declining revenue for another year or two, RBC Capital Markets analyst Mark Mahaney said in a client note.
"We believe that only a radical overhaul of the (user interface) and value proposition could potentially grow its user base, but such a step would carry enormous risk in alienating core users," Mahaney said.
Twitter's share price was battered, closing down 12.3 percent at $16.41.
The company's revenue shortfall came even though its cost of revenue - the amount it must spend for hosting the service and sharing revenue with partners, among other things - rose by 40.4 percent to $306 million from a year earlier.
Meanwhile, revenue per user was $2.25, a 3.4 percent drop from a year earlier and far behind the $7.16 in revenue per user that Facebook Inc (FB.O) reported in the fourth quarter. With virtually no user growth, Twitter is spending more to generate less revenue per customer. The service has 319 million average monthly active users, compared to Facebook's 1.86 billion.
Twitter said it would reevaluate some kinds of advertisements that have not done well, such as so-called "direct response ads" where the goal is for consumers to respond right away.
That leaves the company chasing brand advertisers, but that could be a challenge, too, because those companies - from carmakers to soda sellers - plan six to 12 months in advance and have options, eMarketer analyst Debra Aho Williamson said.
"Figuring out brand advertising is something that Twitter needs to do," she said, "but it's going to take a lot of time to convince advertisers."
(Reporting by David Ingram in New York; Editing by Jonathan Weber and Bill Rigby)