US markets look set to open lower today as earnings from Twitter and eBay after the close yesterday pointed to lower than expected future growth. Upcoming today there is the release of US advance GDP growth and the FOMC rate decision. Futures suggest the S&P500 will open 5 points lower at 1,873 with the Dow Jones expected to open 23 points lower at 16,512. Twitter traded down over 10% afterhours having beaten earnings and revenues estimates. This just goes to show when talking about social networking companies; it’s all about the users. The users create the content and it’s the users clicking on the advertisements. The number of users on Twitter increased 5.8% in the quarter, higher than the previous quarter but much lower than analyst forecasts. At the current price, the market is pricing in a doubling of revenue each year, which seems next pretty implausible if you’re only adding roughly 20% more users in the year. The question is how can Twitter grow its user base? It could buy users like Facebook did by buying Instagram and Whatsapp, but it really doesn’t have the cash to do so. Really, it needs to offer a wider appeal; tweeters are predominantly those who want to receive up-to-the-minute news updates, particularly those in the media as opposed to Facebook that is increasingly attracting an older user base who have felt the need to joint to catch up on what friends and family are up to. The other aspect is how active or ‘engaged’ the users are which might be something Twitter can better control. The company has recently teamed up with Sky to include tweets interacting with TV programmes and has bought Gnip a social analytics data company to help monetise the data they have. Realistically though, the market for technology stocks including Twitter has got ahead of itself. The market expected Twitter to grow as fast as Facebook has, it is growing but not that fast and the price of the stock is moving down to reflect that. The concern will now be that other technology stocks and even other growth stocks will start to do the same. CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.