Cheatsheet: Twitter’s smaller audience is making them more money

The bad news: Twitter’s monthly active users declined 9 million since its second quarter as it focused on cleaning up the platform. The good news: Twitter has seen an uptick in advertising and profitability. Here’s what you need to know:

The key numbers:

  • 326 million monthly active users (down 9 million from the previous quarter and 4 million from the previous year)
  • 67 million monthly active users in U.S. (down 1 million from the previous quarter)
  • Profit was $106 million
  • 9 percent growth in daily active users from the year prior (down 2 percent from the previous quarter)
  • $758 million in quarterly revenue (up 29 percent from the year prior)
  • $650 million in advertising revenue (up 29 percent from the year prior)
  • Total ad engagements up 50 percent from the previous year
  • Cost per engagement was down 14 percent from the previous year
  • $302 million in ad revenue from international users

What Wall Street wanted
Twitter beat Wall Street’s revenue expectations, reporting $758 million this quarter versus $703 predicted. As to the user growth decline, Twitter had warned that would happen as it cleaned up the platform. Twitter’s stock immediately jumped 9 percent in pre-market trading and continued to climb to nearly 12 percent. When the market opened, the stock rose to more than 15 percent.

Fewer users isn’t horrible, for now
Twitter’s latest decline in monthly active users isn’t due to people’s disinterest in the platform, but rather four other reasons: the General Data Protection Regulation, prioritizing health of the platform, product changes to reduce automated usage and a technical issue that reduced notifications. On the earnings call, Twitter CEO Jack Dorsey emphasized the company’s efforts on lessening abuse, misinformation and echo chambers.

“Our purpose is to serve the public conversation, and we have a singular purpose around that objective which is increasing health,” Dorsey said.

Dorsey said Twitter has made “steady progress” on decreasing spam and other suspicious behavior. He reported a decrease in daily usage on desktop — where there’s more likely scripted automation — and double-digit growth on mobile. Twitter predicted a further decline in monthly active users but said analysts should pay more attention to the growth of daily active users.

Advertisers like Twitter’s new focus
Twitter has had highs and lows with advertisers. Some brands have seen value in organic conversations and customer service, notably Wendy’s, but not everyone was willing to dedicate ad dollars. But that’s started to change, especially for companies launching new products. For example, Apple blanketed Twitter with ads during its iPhone event in September.

“We’re seeing a lot of real strong sentiment in our advertiser base because of our focus on events and interests. Twitter has become a place to launch something new, not only to launch it but to have a direct conversation with your customer or potential customers,” Dorsey said.

Dorsey said at his visits with agencies and advertisers during this year’s Advertising Week in New York were productive, with advertisers appreciating the company’s focus on health and work to be transparent about its product roadmap.

More advertising products in the future 
More than half of Twitter’s advertising dollars is coming from video ads, a repeat from last quarter. Twitter’s CFO Ned Segal said the platform’s video website card has become more attractive for advertisers. Looking ahead, Rich Greenfield, media analyst at BTIG, asked about the potential for search ads and direct response ads. Dorsey and Segal said those areas haven’t been the focus of the company but that they could be in the future.

“To be frank, we haven’t focused as much on search. We focus a lot of our efforts on relevancy around the timeline, notifications and on-boarding. We see a lot of potential in search. It’s a part of the experience that I love,” Dorsey said.

Those features could help in Twitter’s effort to create more advertising formats that give the company a “broader set of dollars to make the case for a stronger ROI on Twitter for a whole bucket,” Segal said.

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