Twitter ad sales surge despite tweet purge
Twitter shares jumped as much as 22% yesterday, putting them on track for their biggest one-day gain, as the social media company easily beat Wall Street's revenue and profit estimates by selling more ads even though it lost users after purging millions of fake accounts.
The surge in shares reversed a 19% fall three months ago when Twitter shocked Wall Street with a similar decline in users.
This time, investors welcomed Twitter removing accounts used for disinformation, hate speech and other abuse as the best way to solidify a base of high-quality users who are attractive to advertisers.
"If they are getting rid of bots, fake accounts and fighting hate speech, then it's actually good for the health of the platform overall," said Pivotal Research Group analyst Brian Wieser. "That is certainly more appealing to advertisers."
Twitter's advertising revenue jumped 29% to $650 million in the third quarter from a year earlier, boosted by ad sales on broadcasts from media companies including Live Nation Entertainment, Major League Baseball and Major League Soccer.
That contributed to a similar jump in overall revenue from a year earlier to $758 million, beating analysts' average estimate of $702.6 million, according to Refinitiv data.
The company reported adjusted profit of 21 cents per share, well above the average estimate of 14 cents.
Twitter has deleted millions of suspicious accounts after it and other social media services were used in misinformation campaigns attempting influence voters in the 2016 US presidential race and other elections.
Last week, it disclosed it had removed 10 million tweets that it thought were the work of Russian and Iranian government-backed influence operations.
Twitter said during a conference call that the clean-up effort, which it launched in March and calls a "health" initiative, will allow it to grow revenue faster than users for a sustained period.
"Health ultimately is a growth factor for the service, and we do believe that's important not just for the overall experience, but in terms of making Twitter long-term enduring as well," Twitter CEO Jack Dorsey said during the call.
Neither Dorsey nor CFO Ned Segal clearly answered questions from analysts during a call after the results on how Twitter would ultimately reverse the decline of users.
Monthly active users (MAUs) fell to 326 million in the third quarter, below the average analyst forecast of 331.5 million, according to FactSet. Twitter said it expects them to fall below 326 million in the current quarter, missing the average forecast of 333.4 million.
Twitter usage has been stagnant for more than a year, causing some analysts to worry that growth has peaked.
Twitter "did a superb job of explaining the monthly active user decline, which buys them time, but the stock will come under pressure if MAUs don't start to grow again in 2019," said Michael Pachter, MD of equity research for Wedbush Securities.
Those concerns have been somewhat offset by increases in advertising sales from video, which suggest the company is succeeding in efforts to generate more cash from each user and investors have been looking for solid evidence that it would lead to sustainable growth in revenue and profit.
"Twitter continues to do a lot with a little. User growth is lacklustre, but the company is eking out more from current users," said Jim Cridlin, global head of innovation at WPP's Mindshare media buying agency.
Distribution deals with US Major League Baseball, video game publisher Activision, Sony Music and Vice are starting to lure advertisers to Twitter's live premium video, he said.
Twitter said the number of its daily active users rose by 9% year-on-year, weaker than an 11% jump in the previous quarter and its slowest growth rate in two years. The company does not disclose the total number of daily users.
Twitter shares were up 17% at $32.05 in morning trade. They are still down about 42% from their three-and-a-half year high of $47.79, hit in June.