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Twitter User Growth Stalls in Fourth Quarter But Company Still Optimistic

Twitter shares fell in Wednesday after-hours trading as the company revealed that its user numbers had declined sequentially.

The company reported fourth quarter earnings of 16 cents per share on $710 million in revenue. Analysts had expected Twitter to report earnings of about 12 cents per share on $710 million in revenue, according to a consensus estimate from Thomson Reuters.

Twitter said its monthly active users (MAUs) excluding SMS-only users were 305 million for the fourth quarter, down from 307 million in the previous quarter.

Twitter: We may expand tweets from 140 characters to 10,000 1:38

"We saw a decline in monthly active usage in Q4, but we've already seen January monthly actives bounce back to Q3 levels. We're confident that, with disciplined execution, this growth trend will continue over time," the company wrote in a shareholder letter.

Wall Street had expected the company to report MAUs excluding SMS Fast Followers of about 309 million for the quarter, according to StreetAccount.

Twitter explained that the fourth quarter saw "positive impacts from our marketing initiatives which contributed meaningfully to MAU growth; however, these were more than offset by organic declines, partially due to fourth quarter seasonal trends."

Image: Monthly Active User data
Monthly Average User data CNBC

Firsthand Funds CIO and portfolio manager Kevin Landis told CNBC's "Closing Bell" that the decline in Twitter's MAUs is "uncharted territory for them."

"The product is essential for those who tweet. The product is not essential for those who simply check their Twitter feed," Landis, who owns Twitter in the Firsthand Technology Value Fund and was also a pre-IPO investor in Twitter, said.

On the revenue side, $710 million for the quarter represented a 48 percent increase against $479 million in the year-ago period.

Advertising revenue totaled $641 million, a 48 percent year-over-year jump, but less than the $647.7 million expected by Wall Street, according to StreetAccount.

Related: Twitter Launches New Anti-Troll Cybersafety Committee

Shares in the social media company have fallen about 68 percent over the last year, suffering on reports of leadership turmoil and stagnating user growth.

On Wednesday morning, the company announced that it would adjust how its timelines can work, giving users the option to activate algorithmic tweet sorting. Twitter has emphasized that the option for a non-chronological experience is strictly opt-in.

But the long-expected timeline changes are just one of a series of tweaks reportedly under consideration at Twitter — including upping the 140-character tweet limit to 10,000.