Oct 28, 2015 ยท 5 minutes

Here's the key takeaway from Twitter's latest earnings report: the company remains a work in progress. And progress is coming more slowly than it had hoped.

The work-in-progress status shouldn't come as a surprise to anybody who has been watching the company over the past year. Twitter continues to address the same challenges it has faced for quite some time: bringing in more users, getting them to engage with the site more deeply, and drawing in more revenues from both.

More notable than anything that Twitter announced yesterday was the swift reaction by investors. No sooner did the earnings release hit the wires than Twitter stock plunged to double-digit declines in after-hours trading, falling as much as 13.5 percent below its level before the earnings were announced.

Twitter's revenue and net income came in slightly ahead of Wall Street's estimates, but two items deeper in the report sparked the panic: monthly active users and guidance for the current quarter. MAUs grew 11 percent to 320 million, a slower growth rate from the previous quarter (15 percent) or the one before that (18 percent).

As for the guidance, Twitter said it sees revenue in the current quarter between $695 million and $710 million, a range that is well below the $735 million consensus that analysts had been modeling.

There were some glimmers of good news but even these seemed tinged with bad news. Mobile ads, for example, now account for 86 percent of total ad revenue. Which sounds good, except its down from 88 percent a quarter ago and 89 percent two quarters ago. In the mobile era, Twitter weirdly seems to be getting more ad revenue from the desktop.

Another example: Twitter's revenue grew by 58 percent last quarter to $569 million, a robust rate considering the tepid user growth. That translates into $1.78 per MAU. A quarter earlier, it made $1.59 per active user. So the company is doing a better job of monetizing its users. The problem is that, as Sarah Lacy pointed out, the company may be hitting a ceiling on its ad load. More ads, some analysts worry, could drive down click-through rates or alienate users.

The ad-load issue came up on the call discussing earnings. CFO Anthony Noto said “our ad load is roughly flat” with last quarter, when they were "at one third of our long-term opportunity.” That is, Twitter has the opportunity to triple its ad load in coming quarters, thanks to auto-playing videos. Including ads on Vine, Periscope and Moments could expand the opportunity even further in coming quarters.

Video is a promising area of growth for Twitter, which is why more users have noticed autoloading videos in their feeds. Here too, there is a mixed blessing. Autoloading videos helped drive up ad engagements by 165 percent in the quarter. But they also drove down cost per ad engagement by 39 percent.

This is Twitter in 2015. Declining revenue growth, disappointing user growth, and every piece of good news haunted by a bad-news goblin. It is what you would expect to find in a company that is trying to right itself – especially one in social networking, where changes rolled out too quickly can drive users away.

Facebook has mastered the art of iterating change in its news feed, delivering a constant series of tweaks that elicit both temporary complaints but also a deeper long-term engagement. Twitter is still losing money on a GAAP basis, so it doesn't have the luxury of time that Facebook does. It needs to make dramatic change and show results quickly.

Many of the projects it's relying on – direct-response ads, monetizing Vine and Periscope, rolling out Moments – have been in the works for many months (regardless of the Jack Dorsey stage managing to make Moments seem like an overnight launch). Investors have – or should have – known about them.

Noto and Chief Operating Officer Adam Bain gave several reasons for investors to wait for a few more quarters. The partnership Twitter signed with Google's DoubleClick will start a pilot program by the end of this year. Promoted video ads in Moments will also begin to appear in the quarter. The company is working on building out features for niche communities and corporate customer-support services.

All of this will require time to deliver. What's worrisome today is that investors are losing patience with the company pretty quickly.

Twitter's stock has now gapped down after its last three earnings reports. Last time, much of the selling came after downbeat Dorsey called the slow user growth “unacceptable.” Now that user growth is even more anemic, Dorsey seems to accept it – or at least the idea that it's going to take some time to bring in more users. Which is the same message Dick Costolo had for investors six months ago.

After reading some scripted comments, Dorsey largely handed over the Q&A session to Bain and Noto, stepping in to answer questions about Twitter's vision and roadmap. That may befit a part-time CEO. Someone unfamiliar with executive titles at Twitter could have watched the Periscope of the earnings call and concluded Bain was the CEO and Dorsey was the chairman.

The risk for Twitter is that investors may be beginning to regard the company as a kind of Yahoo 2.0 (or what Yahoo would be if it didn't own 15 percent of Alibaba). When Marissa Mayer took over Yahoo, many who respected her skills still doubted she could save Yahoo because it was probably too late for anyone to save Yahoo. The Alibaba stake has bought Mayer three years, but her turnaround is not looking too good.

Twitter can still be turned around, but doesn't have such a generous grace period. And, of course, it has a part-time CEO. One busy with the roadshow for the Square IPO, which is facing its own concerns, with an updated prospectus that shows Square's revenue growing more slowly than before and its losses growing faster.

Dorsey has gotten what he wanted – CEO titles at both companies he helped to found. Both have come a long way in part because of Dorsey's vision for them. Both are facing mounting challenges. From the market's perspective, a vision is worthwhile only insofar as it can be executed into something real. The market has a clear message for Twitter this week: Hurry up and execute.