Twitter earnings: more revenue from declining user base

An earlier version of this article misstated the number of monthly active users Twitter reported in the third quarter. It has been updated.
Twitter stock soared after the company released third-quarter earnings.Twitter Inc. revenue continued to grow as the company managed to squeeze more revenue from a user base that has declined for a second quarter in a row due to fake account purges. Twitter
TWTR, +15.47%
 stock soared roughly 16% in early trade Thursday. Sales grew 29% to $758 million in the third quarter compared with the year-earlier quarter, well above analyst expectations of $701 million. The bulk of Twitter’s sales is the result of advertising, which continued to grow because of the company’s efforts to clean up its platform and the value advertisers place in the conversations they have with customers on the platform, among other things, Chief Executive Jack Dorsey said on the earnings conference call. “The sentiment is really positive,” Dorsey said. “There’s a lot of appreciation for our focus. And that’s certainly our superpower of conversation but also the focus on health and increasing health in the public conversation.” Twitter swung to a profit, logging net income of $789 million, which amounts to $1.02 a share, after losses of $21 million in last year’s quarter. Profits were bolstered by a $702 benefit from income taxes, and without that, among other adjustments, Twitter reported adjusted earnings of 21 cents a share, ahead of the FactSet earnings consensus of 14 cents. Like the second quarter, the company’s monthly user count continued to decline because of Twitter’s efforts to purge fake or malicious accounts as well as Europe’s General Data Protection Rule. Executives said several product changes and a bug that impacted notifications also contributed to the larger-than-expected decline of nine million users, for a total of 326 million monthly users. Executives on the call said that despite reduced monthly users, the company has been able to generate more revenue from its existing base, in part because people who use the site every day are more engaged. “This is the third quarter in a row where we’ve grown revenue in excess of audience as we continue to deliver bettered formats, better relevance against a larger and more engaged audience, we’re delivering better for advertisers,” Chief Financial Officer Ned Segal told analysts. BTIG analyst Rich Greenfield reiterated his view Thursday that investors should focus less on the company’s monthly user counts and more on daily users. Twitter does not disclose the precise number of daily users but reported that it grew by 9% down from 14% in the year-earlier period. That was partly because fewer daily users go to the platform via a desktop web browser, and such people are less valuable to the company.
Twitter’s Daily-Active-Users (DAUs) are 33% higher today than in Q3 2015 ????????????Q3 18: up 9%Q3 17: up 14%Q3 16: up 7%???? that math translates to 1/3 more users than in Q3 2015 $TWTR pic.twitter.com/DytwcSeIDN— Rich Greenfield (@RichBTIG) October 25, 2018
Segal said that two million people who had not been on the service for a month or more arrive at Twitter every day, and a third of those haven’t been on the platform before. “We look at that and see lots of opportunity to help them find what they’re looking for faster, so that they will stay longer and come back more frequently,” he said. Twitter projected adjusted earnings before interest, taxes, depreciation and amortization of between $320 million and $340 million. Executives also said they expect another single-digit decline in monthly active users, citing the same reasons for the decline in the second and third quarters. Twitter shares have gained over the past 12 months, as of Wednesday’s close, while the S&P 500 index
SPX, +1.86%
 has risen 4%.

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