Twitter's investments in live video and entertainment, the company's latest attempt to grow its audience, aren't yet paying off for investors.
While the number of monthly active users surpassed analysts' estimates in the second quarter, Twitter reported quarterly sales on Tuesday that fell short of expectations, sending shares down 12 percent in after-hours trading. The forecast for the third quarter also missed estimates.
Since returning to run the company a year ago, CEO Jack Dorsey has been aiming to keep pace with Facebook and Snapchat, as the market for social apps and messaging services becomes more competitive and ad dollars stretch across new platforms. Twitter's core messaging platform is struggling to keep advertisers excited.
From the national political conventions to live events like Wimbledon and select National Football League games, Twitter is signing content deals to help boost engagement and attract brand spending. The company is counting on revenue from those partnerships to make up for weakness elsewhere.
"We continue to believe that, with disciplined execution against our priorities, we can drive sustained engagement and audience growth over time," Anthony Noto, Twitter's chief financial officer, said in a statement. "We're partnering with the providers of the world's most popular live content to bring more and more of those events onto Twitter to provide a unique and compelling consumer experience."
The San-Francisco based social media company said revenue increased 20 percent to $602 million, falling short of analysts' estimates of $607 million, according to Thomson Reuters. That marks a deceleration from 61 percent growth a year earlier. For the current period, Twitter forecast sales of $590 million to $610 million, while analyst projections called for revenue of $678 million.
Twitter continues to lose money, but it did report earnings, excluding certain items, of 13 cents a share, topping estimates of 10 cents, according to Thomson Reuters.
Twitter said MAUs grew to 313 million, up from 310 million in the previous quarter, and coming in just ahead of the estimate of 312 million, according to data obtained by FactSet. Growth in MAUs, the metric most watched by Wall Street, has been sluggish in recent months, leading some experts to believe the company is headed for a permanent slowdown.
Competition from Facebook is particularly challenging.
Facebook's Messenger app recently reached 1 billion users, joining the company's other messaging app WhatsApp, which also has 1 billion users. Facebook now boasts 1.65 billion MAUs, while Instagram, also owned by Facebook, has said it has 500 million. Japanese chat app Line, which went public earlier this month, has amassed more than 218 million users.
Twitter's ad revenue rose 18 percent to $535 million, and mobile accounted for 89 percent of the total. But among the major social networks, Twitter is only projected to capture 7.9 percent of worldwide social ad spending in 2016, with Facebook grabbing 67.9 percent, according to eMarketer.
Facebook reports quarterly results on Wednesday, followed by Google parent Alphabet on Thursday.
Twitter said there will be a "long-term shift away from desktop video to premium mobile environments," and that the company is "well-positioned to benefit from that shift." The company said, "It will take time for marketers to understand the impact of video ads on mobile vs. the alternative."
Twitter's stock had climbed 16 percent over the past month, driven largely by news that Microsoft agreed to acquire social network LinkedIn for $26.2 billion, and leading some experts to predict that Twitter could be next in line for a takeover.
The disappointing report on Tuesday put a halt to Twitter's recent rally, which trimmed its loss for the past year to 48 percent. Twitter shares plunged 12 percent in extended trading to $16.30.