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Twitter Shares Soar on Better-Than-Expected Earnings, Increase in Users

by Julia Boorstin, CNBC / / Source:
Jack Dorsey
Square CEO Jack Dorsey is interviewed on the floor of the New York Stock Exchange on Nov. 19, 2015.Richard Drew / AP file

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In a surprise after several quarters of disappointing results, Twitter on Wednesday reported better-than-expected earnings and revenue.

Shares of the social media company surged more than 10 percent following the report.

The company accelerated its monthly active users to 328 million, 7 million more than expected and 9 million more than the prior quarter. Twitter said daily usage accelerated for the fourth-consecutive quarter — to 14 percent year-over-year growth. It didn't disclose a daily active user number.

Twitter shares rose more than 11 percent in premarket trading after the report was released.

CEO Jack Dorsey attributed the accelerating user growth and engagement to a number of changes that have improved the user experience in the timeline and notifications to draw users back to the timeline. Dorsey pointed to the deployment of machine learning to show users tweets that are more relevant to them.

Dorsey also said the company has been rolling out product improvements faster, such as making it easier to reply to tweets and to follow conversations, and the ability to search and browse by topics and live content. Dorsey said the company is also making progress cracking down on abuse on the platform, and that's having a positive impact.

Revenue was better than expected at $548 million, compared with estimates of about $512 million, but it continues to decline.

Chief Financial Officer Anthony Noto attributed the weak outlook to a couple reasons, most notably that the company is phasing out less effective ad formats. He also said revenue in this past quarter was from ad deals made six to 12 months ago, and since then the cost per engagement for advertisers has decreased.

Noto said it's not known when the trend will turn around, but he struck a decidedly optimistic note, saying the company has signed 32 ad deals since the last earnings call. Since then, he said, its team has done a better job demonstrating to advertisers the better return on investment of Twitter's ad products.

As for the perpetual question of whether President Donald Trump's frequent tweets are driving user growth, Noto said there's some correlation, but that causality couldn't be proved.

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