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Shares of Twitter dropped about 24 percent Thursday - a paper loss of $8.7 billion - after it reported sluggish user growth. The selloff was a sign that the social network will have a tough time regaining its stature with advertisers, at least until it releases better numbers, a senior tech analyst told CNBC.
"To us, when you're talking about opportunities relative to communicating with advertisers, you want to lead with a large and growing and increasingly engaged user base," Scott Kessler of S&P Capital IQ told "Squawk on the Street." "And Twitter doesn't seem to have the data to support that proposition."
Twitter closed Wednesday's trading session at $65.97 a share before posting earnings after the bell, the first quarterly report since it went public in November. Shares reached a low of $50 during trading Thursday, on pace for Twitter's worst day on record. The formerly red-hot stock had zero room for error, said Colin Sebastian, a senior research analyst at Robert W. Baird & Co.
Despite a rocky trading session Thursday, Twitter's stock remained up 99 percent from its IPO price of $26 a share.
"The stock was priced for perfection - the underlying metrics really do matter in that scenario," Sebastian said. "The spotlight is back on user growth, and the stock will be in the penalty box until we get a better read on whether their initiatives are having any impact."
Sebastian, who holds a neutral rating on Twitter stock, said he would consider buying shares if they drop into the mid-$40 range.
Kessler said he has held a sell rating on Twitter for the past few months, based largely on concerns about user engagement.
During a later interview on "Squawk on the Street," Cowen & Co.'s John Blackledge said Twitter seems to have less powerful "network effects" than other social media companies, such as Facebook, LinkedIn and Instagram. For example, he said, photo-sharing network Instagram added twice as many users as Twitter between the second and fourth quarters of 2013.
Twitter "got a lot of promotion around their successful IPO in the fourth quarter," Blackledge said. "A lot of people thought that would help user growth and engagement. Clearly it didn't."
Eric Jackson has an idea where Web users are heading instead of Twitter - and it's far away from the public forum that the micro-blogging platform has helped cultivate. Jackson, the founder of Ironfire Capital, believes private-messaging platforms such as WhatsApp are drawing users away from established social networks such as Twitter.
"That's something to watch for a potential threat to Facebook in the quarters ahead, as well," Jackson said during a later appearance on "Squawk on the Street." "It is really surprising how the new user growth is coming from these private networks."
CNBC's Giovanny Moreano contributed to this report.
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Twitter threatens to sue Obama administration
Twitter says it is prepared to sue the Obama administration for the right to disclose more details about government surveillance requests.
In a blog post on Thursday, the head of global legal policy for the micro-blogging website said a recent agreement between tech groups and the Justice Department did not go far enough to address the company's concerns.
"We think the government's restriction on our speech not only unfairly impacts our users' privacy, but also violates our First Amendment right to free expression and open discussion of government affairs," Jeremy Kessel wrote.
"Therefore, we have pressed the U.S. Department of Justice to allow greater transparency, and proposed future disclosures concerning national security requests that would be more meaningful to Twitter's users. We are also considering legal options we may have to seek to defend our First Amendment rights."
Last week, five tech companies reached a deal with the Justice Department to disclose when they receive national security letters and Foreign Intelligence Surveillance Act orders, which force companies to turn over information about users. But the agreement only allows companies to report ranges of 250 or 1,000, depending on how they categorize the requests.
Twitter says that's not enough.
"Allowing Twitter, or any other similarly situated company, to only disclose national security requests within an overly broad range seriously undermines the objective of transparency," Kessel wrote on Thursday. "In addition, we also want the freedom to disclose that we do not receive certain types of requests, if, in fact, we have not received any."
Companies have said that consumers around the world trust them less because they don't know the extent to which they are handing information over to the government.
Twitter did not release information about the national security requests it had received. It has seen a steady increase in the number of other government requests about users' accounts it has received in the last two years, it said.
About 59 percent of requests in the last six months of 2013 came from the U.S., Twitter said, though 45 different countries have asked for information since 2012.
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