shares soared more than 15% after the social-media company Thursday said it was doing a better job of extracting more revenue from people using the service, even as its number of engaged users shrank again in the third quarter as it continued to purge fake accounts.
Twitter said its number of monthly active users world-wide, the metric most closely watched by Wall Street for years, fell by nine million from the second quarter to 326 million—its steepest decline ever and more than it had anticipated. The previous biggest drop was by two million.
Despite the decline and a slowdown in daily user growth to 9%, Twitter saw a significant jump in revenue from advertising, particularly in the U.S.
Overall, third-quarter revenue climbed 29% to $758.1 million, most of it from ads and the largest increase since the first quarter of 2016. Analysts had expected $702.6 million, according to estimates from Thomson Reuters.
Investors are starting to separate Twitter’s growth in users from its ability to make money, said Brian Wieser, an analyst at Pivotal Research Group.
“There’s an acceptance that maybe users don’t grow and that’s OK,” he said. If Twitter continues to improve the quality of its service and develop better ad products, “then it can grow its business pretty rapidly.”
That is a theme stressed recently by Chief Executive Jack Dorsey, who told analysts Thursday that cleaning up the platform ultimately helps drive user growth. “We continue to make really steady progress against some of the health initiatives that we’re seeing, most notably this quarter around suspicious sign-ups,” he said.
Net income was $789.2 million, inflated by a $683 million tax benefit, compared with a loss of $21.1 million a year ago. Adjusted profit came to 21 cents a share, well above the 14 cents analysts had expected, according to Thomson Reuters.
Shares of the company, which had stumbled nearly 6% on Wednesday as technology stocks drove the market lower, surged in morning trading. The shares, at one point up more than 20%, gained more than 15% to $31.87.
Twitter’s improvements to its product are having an impact, BTIG analyst Richard Greenfield said. “They are throwing you the right tweets when you open up the app and they are better at showing you ads. That’s translating into substantial revenue beats,” he said.
Twitter said that while it is doing a better job serving advertisements in users’ timelines, the company has further ad avenues to explore. “We do see a lot of opportunity and potential within search,” finance chief Ned Segal said.
Wall Street looked past Twitter’s second consecutive quarterly decline in monthly users, and a warning it could see another drop in the current quarter. Twitter blamed the drop in part on the same factors that plagued it last quarter—removing fake accounts and the impact of Europe’s new privacy law. A clampdown on automated usage such as bots, as well as a since-resolved bug in email notifications, also contributed to the decline, the company said.
The stock surge Thursday was a far cry from three months ago, when Twitter’s declining user base fueled concerns about slowing growth at social-media companies including Twitter,
and Snap Inc.—concerns that sent their stocks careening.
Daily active users grew by 9% from a year ago, breaking a seven-quarter streak of gains between 10% and 14%. Twitter, which doesn’t disclose an actual number for daily users, attributed the deceleration to a decline in people who use the service only via web browsers—people who tend to be less valuable than those who also access Twitter via mobile devices. Growth in those users rose by a double-digit percentage, the company said.
For the fourth quarter, Twitter projected adjusted earnings before interest, taxes, depreciation and amortization of between $320 million and $340 million.
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