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Twitter’s got a growth problem, but it’s bringing in ad dollars

Twitter’s very first quarter as a publicly traded company was fairly smooth, compared to rival Facebook—though to be fair, that was a low bar to clear. The microblogging service entered public life already swinging for the fences with mobile ad revenue, so it’s no surprise that Twitter handily pulled in $243 million in sales in the fourth quarter of 2013.

But there’s a problem: Twitter’s growth is slowing, which is bad news for a company that depends on a slew of eyeballs seeing its advertisers’ promoted tweets and tailored ads. Last fall, Twitter said it had 230 million monthly active users. The network has added only 11 million users since going public—its growth has slowed waaaay down, and it shows no signs of catching up with Facebook, which has more than 1 billion devoted users. Considering that Twitter is almost eight years old, its struggle to catch on with users is troubling at best. Even Instagram continues to grow by leaps and bounds.

Twitter CEO Dick Costolo said during the company’s earnings call that he has a plan to reverse that slowdown.

How to simplify Twitter

“We are doubling down in 2014 to accelerate the growth of our user base,” Costolo said forcefully.

How? By continuing to roll out visual changes that longtime users don’t love that much—like in-line images, content discovery tools, and threaded conversations—but new or casual users like because it makes Twitter easier to understand.

Media-rich Timelines are one tactic Twitter has used to draw in new users.

Twitter has numbers to support the success of the aesthetic changes it made last fall: favorites and retweets have jumped 35 percent and direct messages are up 25 percent since the design tweaks rolled out.

Costolo said until recently, Twitter’s growth “was viral and organic—growth was something that happened to us.” The company has to try harder now.

The company will soon launch native mobile sign-up so new users can easily register for the network from a smartphone and immediately find their friends on Twitter. Costolo said the network is also working on organizing content by topic instead of displaying tweets in reverse chronological order. An image-heavy, topic-based Twitter would be a drastic change from Twitter as it was originally created.

More messaging features are in the works, though Costolo didn’t say if Twitter plans to spin off a DM app the way Facebook has.

Making money

Twitter had a leg up on Facebook during its first quarter as a publicly traded company, because Twitter already brought in money on mobile. Where Facebook started from zero, Twitter was already building out ad products on the platform.

Twitter beat analyst expectations of $218 million in revenue, and even reported a tiny profit of 2 cents per share, if you exclude one-time stock-based expenses. Including those expenses, Twitter lost a whopping $511 million in the fourth quarter. Analysts had expected the company to lose some $253 million, so that was a bit of a surprise.

But Twitter is working to boost ad revenue while not alienating its existing user base and attract more users. In the fourth quarter, Twitter introduced new types of advertising, like TV conversation targeting, tailored audiences, conversion tracking, and promoted accounts. The company said it’s being selective about the ads it places in your Timeline.

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The bulk of Twitter’s fourth-quarter revenue, $220 million, came from advertising, 75 percent of which was on mobile. Twitter will continue to build out its ad products but also explore other forms of revenue, like the rumored commerce platform being headed by former Ticketmaster CEO Nathan Hubbard.

Costolo said experiments like the ones with American Express and Starbucks that let you trigger payment with a hashtag have been successful. He didn’t offer details on when or how Twitter will roll out future buying opportunities, but you can expect Twitter’s cards—the media that appear inside tweets—to be “the vehicle through which we think about commerce opportunities.”

Maybe really good deals could draw new users in, thereby solving Twitter’s pair of problems as a young company: customers and cash.

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