UPDATED 15:56 EDT / APRIL 26 2017

APPS

Surprisingly strong user growth boosts Twitter earnings – and its shares

Twitter Inc. has gone through a tough couple of years between significant layoffs, failed potential buyouts and executive churn, but the microblogging service might finally be on the rebound.

Today the company reported the best user growth since 2015 and better-than-expected first-quarter results. Twitter earned a profit of 11 cents per share on revenue of $548 million, both considerably higher than analysts’ expectations of a one-cent profit on $512 million in revenue. As a result, shares rose nearly 8 percent today after the early-morning earnings announcement.

Twitter’s user base has always been steadily growing, but the company says that user growth has accelerated over the last four quarters thanks to a combination of organic growth, product improvements and marketing. Twitter reported that its daily usage has grown by an impressive 14 percent year-over-year, and its monthly active user base now includes more than 328 million people. For comparison, Twitter’s annual user growth in the first quarter of 2016 was just 3 percent.

Chief Executive Jack Dorsey (pictured) said during an earnings call with investors that product improvements made their largest contribution to user growth ever in this quarter. He noted that deep learning features were especially effective, surfacing more relevant tweets in timelines and sending notifications that were more likely to get users to open the Twitter app and engage with content.

In addition to product improvements, Twitter Chief Operating Officer and Chief Financial Officer Anthony Noto also credited some of the company’s growth to users’ increased interest in politics and current events. U.S. President Donald Trump’s nearly daily tweets no doubt contributed to that interest.

“There is some evidence that we benefited from our new and resurrected users following more news and political accounts in Q1, particularly in the US. That’s a really positive thing,” Noto said during the Q&A segment of Twitter’s earnings call. “As you know, we believe Twitter is the best at showing you what’s happening in the world and what’s being talked about, and having the political leaders of the world as well as news agencies participating and driving that is an important element to reinforcing what we’re the best at.”

Some analysts were encouraged, if still tentative. “The bottom line is that TWTR may actually pull off a turnaround,” Macquarie Research analyst Ben Schachter said in a note to clients. “We are encouraged by the user gains as well as commentary around increased partnerships and exploring new revenue drivers. However, there are many challenges ahead and execution will take time.”

The growth in users was not enough to save Twitter from a decline in revenue, which was down 8 percent year-over-year in the first year-over-year decline since it went public. Dorsey said he believes that Twitter’s focus on improving its platform and streamlining its products will lead to long-term revenue growth.

However, some analysts remain skeptical. “Despite a better 1Q, we believe the trajectory of the biz remains challenged,” Cowen & Co. analyst John Blackledge wrote in a note to clients. In particular, he added, second-quarter guidance suggests a further deterioration of the ad business.

Photo: Esten Hurtle (@esten) for Twitter

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