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Twitter’s Investor Problem: It’s Not Popular Enough

The company is making more money than ever, but the slowing growth in its user base is troubling

When Twitter goes public, the number troubling investors won’t be how much money it’s bringing in. It will be how much money it is spending — and how many users it has.

Based on a filing with the SEC on Tuesday, Twitter had 232 million users as of Sept. 30. That represents a 6 percent jump from the previous quarter and a 39 percent jump from the same quarter last year. However, by comparison, the same quarter-over-quarter user growth a year ago was 65 percent.

So while Twitter is still growing, it’s no longer growing as quickly as one would like to see for a “social” company.

Twitter does not report earnings yet because it’s not a public company, but it essentially reported them on Tuesday as part of march towards an initial public offering.

The good news in Twitter’s filing is its revenue will top half a billion dollars this year. It has generated $422 million through its first three fiscal quarters this year, and made a cool $169 million in the third quarter alone. That second figure is more than half what it made all of last year.

More than 70 percent of advertising revenue came from mobile devices, so that eliminates a problem Facebook had in its early days as a public company.

Yet its costs are rising, too. Twitter reported costs of $548 million through the third quarter, a 50 percent increase over the first three months of last year.

That means the company’s losses for this year will outpace its losses for last year.

So what’s Twitter’s case to investors?

Its making more money per user than it ever has before, and that will eventually offset costs. Now about those users…