Daily Tech Snippet: Wednesday, July 29

• Archived snippets are here, and MP3 versions are here

• Twitter Shares Surge on Earnings Beat, then Slump on Slowing User Growth: After reporting quarterly sales that topped estimates, interim Chief Executive Officer Jack Dorsey and Chief Financial Officer Anthony Noto struck a critical tone, saying user growth won’t improve until the social-media company reaches a mass market -- something that will take a mixture of product improvements and marketing. The company’s efforts so far have had minimal success, they said. Shares dropped 11 percent in extended trading, after climbing as much as 12 percent following the earnings release. n the second quarter, revenue rose 61 percent to $502.4 million, the social-media company said Tuesday in a statement. That exceeded analysts’ average projection for $481.9 million, according to data compiled by Bloomberg. Twitter’s net loss narrowed to $136.7 million, or 21 cents a share. Profit excluding certain items was 7 cents, compared with the 4 cents analysts estimated. On a conference call, executives quashed any initial optimism generated by the report by confronting Twitter’s underlying problem: It’s much smaller than the competition. The company today reported 316 million monthly users, while Facebook has 1.4 billion. Twitter recently started counting feature-phone users in emerging markets as part of its tally. Without that extra boost, Twitter’s user count was 304 million. Noto said Twitter changed its tone on the call because growth slowed so meaningfully, the company wanted to explain how it’s working to address the deceleration. “In the past we may not have had the growth that investors wanted us to have, but it was still quite strong. And this quarter we barely had any growth.”


• Yelp Plunges After Reducing Sales Forecast, Ending Brand Ads: Yelp, the customer-review website, plunged as much as 18 percent when it reduced its revenue forecasts and said it will stop selling national brand advertising. Yelp lowered its third-quarter sales forecast to a range of $139 million to $142 million, below analysts’ average estimate of $152.7 million, according to data compiled by Bloomberg. Annual revenue was projected at $544 million to $550 million from an April forecast of $574 million to $579 million. The website attracts more than 160 million visitors looking for customer reviews about local businesses. National brand advertising revenue decreased 8 percent to $8.3 million in the second quarter and Yelp will phase out those sales by the end of the year to focus on its core local advertising. Yelp shares fell in April after the company reported declining advertising sales. The shares rebounded in May following reports that Yelp was exploring a possible sale. Yelp reported a net loss of $1.3 million, or 2 cents a share in the quarter, from a profit of $2.7 million, or 4 cents a share, a year earlier. “I certainly think they can survive, as to whether or not they can flourish time will tell,”


• Akamai forecasts revenue, profit below estimates; shares sink: Online content distributor Akamai Technologies forecast third-quarter revenue and profit below estimates, citing a stronger dollar. Shares of Akamai, which claims to deliver between 15 and 30 percent of all Web traffic, fell as much as 13 percent in after-hours trading on Tuesday. The company's second-quarter profit fell nearly 8 percent after 11 quarters of growth, as costs rose. Akamai, whose customers include MTV Networks and online home rental marketplace Airbnb, forecast an adjusted profit of 56-58 cents per share and revenue of $543 million-$555 million for the current quarter. Akamai and rivals Limelight Networks and Level 3 Communications face increasing competition as companies such as Amazon, Netflix and Comcast enter the content delivery market. Akamai has been trying to differentiate itself by investing in cloud security services, as well as investing to expand its content delivery platform to better handle rising video traffic. Revenue rose 13.6 percent to $540.7 million, beating the average estimate of $540.4 million. Overall net income fell to $67.2 million, or 37 cents per share, from $72.9 million, or 40 cents per share, a year earlier. Up to Tuesday's close of $73.65, Akamai's shares had risen about 17 percent this year.


• Stripe, Digital Payments Start-Up, Raises New Funding and Partners With Visa: Stripe is gaining more financial allies to help it take on the digital payments industry. The start-up, based in San Francisco, said on Tuesday that it had raised new funding from investors like Visa, American Express and Sequoia Capital, among others, valuing the young company at $5 billion. That is a significant jump for Stripe, coming roughly six months after it garnered $70 million at a $3.5 billion valuation. Stripe declined to disclose the amount of new funding, except to say it was “less than $100 million.” Founded five years ago, Stripe has quickly gained traction by offering simple software and services for online small and medium-size businesses. Similar to Square and PayPal, Stripe accepts credit and debit cards for merchants who have not taken them previously. Stripe charges a small fee per transaction. On Tuesday Stripe also announced a partnership with Visa, one of the world’s largest credit card companies, in which the two will work on ways to improve digital transactions. The companies said they expected to collaborate on initiatives like payments security, as well as software like website “buy buttons.” Stripe said it would rely on Visa’s global footprint to expand its international availability. Stripe is currently available to businesses in more than 25 countries, and hopes to expand further with help from Visa. That Visa is partnering with Stripe instead of a larger payments processor is something of a coup for the start-up. Visa has become increasingly wary of other payments companies, such as PayPal, which processed more than $220 billion in online transactions last year and this month was spun off from its onetime parent, eBay. While PayPal has handled online credit transactions since the early days of e-commerce, Visa said it became concerned by PayPal’s ability to siphon customer relationships away from card companies and steer customers to debit transactions, in which PayPal sees healthier profit margins.


• LinkedIn, Notorious for Sending Too Many Emails, Cuts Back: On Monday, LinkedIn decided that less is more. In a blog post, the site acknowledged its history of overzealous email habits and said it was taking steps to reduce the amount that users would receive. Among the examples, users who receive too many requests to connect will now get just one weekly digest, and users who subscribe to several of the site’s groups will get updates in a streamlined format. “For every 10 emails we used to send, we’ve removed 4 of them,” Aatif Awan wrote in the post. “Already, member’s complaints have been cut in half.”


• Price Is Only One Weapon Amazon Is Using to Win the Cloud War: Remember how a few months ago there was talk of a “price war”in the world of cloud computing services? It’s over and all the signs point to Amazon having won. As we reported last week, Amazon posted a stunning 81 percent rise in revenue at its Amazon Web Services cloud computing unit, along with a five-fold surge in the unit’s operating income, giving it an operating margin of 21 percent. During the quarter Amazon said it cut prices on many of its cloud services for the 49th time since the service launched in 2006. Meanwhile, at least one of Amazon’s rivals — Microsoft’s cloud computing service Azure — raised some of its prices in Europe and Australia. Portions of emails to Azure customers published by the Dublin-based blogger Aidan Finn earlier this month detailed price increases of 11 percent in Europe and up to 26 percent in Australia. The last time Amazon gave a ballpark estimate for how many customers it had on AWS was late last year when it said it had more than one million active customers. It hasn’t updated that figure since then. Whatever the number, it suggests that the average revenue per customer is on the rise. If Amazon’s margins are increasing it implies that its operational costs are coming down at the same time that its customer count is going up. Logically speaking, that implies that quality of service might suffer. There’s a few reasons that it doesn’t, and it has to do with how Amazon’s costs come down as it scales up. As Amazon’s cloud footprint grows, its fixed costs per customer on things like commodity memory chips and electricity decrease. The more chips and power it buys, the more negotiating leverage it has to squeeze a good deal from suppliers. Meanwhile, business and administrative costs associated with keeping the system running — billing and personnel, for example — shrink as more customers sign on and processes become more efficient. Finally, there’s more that those customers can do with AWS all the time. Amazon has added 350 individual new features to AWS in the first half of the year. Two new services include one called AWS Device Farm which allows mobile app developers to run their software on simulated Android mobile phones. At its current pace it will by sometime this fall have added about 700. And the pace at which those features are being added is increasing too. Last year it added 516 new features. The year before that, it was 280, and the year before that 159.