The company has been showing as much during the last year, as the social network shifts from a growth-at-any-cost mode to one of actually making money. Its monthly active user base remains stuck in the low 300 million range. And that actually took a hit in the third quarter, falling by nine million users as the company continued its effort to clean out questionable accounts. Twitter said it expects to see another decline in the fourth quarter in the mid-single-digit-millions range, as it continues in its efforts to improve the health of the business.
For an advertising business, fewer eyeballs isn’t typically a good thing. But advertising revenue actually jumped 29% year-over-year to a record $ 650 million for the quarter, beating Wall Street’s targets by nearly 10%. The improvement is because Twitter’s cleanup efforts make the platform more attractive for those willing to pay for exposure to its audience. As Brian Wieser of Pivotal Research put it, advertisers “see the user base as higher quality when purges occur.”
Twitter’s share price surged 15% Thursday following the release of its quarterly results. That puts the stock around 43 times forward earnings—not cheap for a company that still has plenty of work ahead in the cleanup department. And the fourth quarter, with U.S. midterm elections pending, poses some new risks in an environment where social networks are now being closely watched for their role in political campaigns.
But the recent results are an encouraging sign that Twitter is at least willing to make some hard decisions on user growth. Also encouraging is that those hard decisions can still pay off.
— Dan Gallagher
Write to Dan Gallagher at firstname.lastname@example.org