(Bloomberg)—Twitter Inc. topped estimates for earnings and revenue in the third quarter amid higher spending from advertisers, marking a much-needed boost for the social-networking site after months of scrutiny from lawmakers and criticism about fake or offensive accounts. The shares jumped the most in eight months.
Twitter’s financial health has been consistently improving in recent months, benefiting from a push to add more live video and personalized content. The social network’s ad revenue jumped 29% during the quarter to $650 million from $503 million a year earlier. That growth marks the third consecutive quarter of double-digit growth, and Twitter has reported positive net income for four straight quarters. While sales and earnings have grown stronger, Twitter has suffered from a drop in user metrics, especially after purging its ranks to eliminate fake accounts, an effort that continues ahead of the U.S. midterm elections in November.
Monthly active users averaged 326 million, San Francisco-based Twitter said Thursday in a statement. That’s a decrease of 9 million from the second quarter. Twitter warned in its July earnings report of a continued drop in the metric as a result of efforts to clean up its service and stricter privacy rules in Europe. The company said those trends will continue and lead to another decline in monthly users for the fourth quarter.
“We have a more engaged audience and we are delivering a better return on investment for advertisers,” chief financial officer Ned Segal said in an interview. “We are now seeing the fruits of our labor and going into the fourth quarter we have the wind in our backs.”
Analysts seemed to look beyond the user numbers to the improved financial metrics. Twitter’s monetization trends are enough to “more than offset” declining monthly active users, Robert Baird & Co. analyst Colin Sebastian wrote in a note. The firm has a neutral rating on the stock and a $35 price target.
In the third quarter, revenue jumped to $758.1 million, compared with the average analyst projection of $701.3 million, according to data compiled by Bloomberg. Profit, excluding some costs, was 21 cents a share, higher than the average estimate of 14 cents.
Though Twitter is becoming a more attractive place for advertisers, the company has struggled to expand its user base. Twitter has improved its sales process and targeting for advertisers with investments in artificial intelligence and machine learning, Victor Anthony, an analyst at Aegis Capital Corp., said before the earnings were released. It has also used new technologies to better predict what users want to see and curate the news in their feeds.
“The problem is getting users to see the value of Twitter,” Anthony wrote in a note. “As Twitter continues to improve the platform, we expect to see more stickiness from the new users.”
Twitter’s net income in the third quarter was $789 million, or $1.02 a share, including the release of deferred tax asset valuation allowances of $683 million. A year earlier, the company had a net loss of $21 million.
Twitter gave a forecast for fourth-quarter earnings before interest, taxes, depreciation and amortization of $320 million to $340 million, in line with analysts’ average estimate of $332.3 million.
The company plans to grow its employee ranks by as much as 15% by the end of the year, Segal said, adding that “our retention and ability to attract people to Twitter has gotten a lot better.”
Meanwhile, Snap Inc., parent company of the app for sending disappearing photo and video messages, reported that the number of daily users fell for a second consecutive quarter, to 186 million. Analysts on average projected 186.8 million, according to data compiled by Bloomberg. Company executives said the app will probably lose users in the fourth quarter, too.
Snap has lost more than half its value since a March 2017 initial public offering. While the company has a reputation for creative products that are popular among young people, its performance has been volatile, rocked by employee and executive turnover, as well as a redesign of Snapchat earlier this year that was criticized by many users and advertisers. That redesign, championed by CEO Evan Spiegel, separated chats and postings of friends from the rest of the app, the content from media organizations that is paired with advertising sold by Snap.
Snap said the quarter-over-quarter decline in its user base was primarily among those using the Android version of the mobile app, which has been plagued with development issues. The company lost users in North America and Europe, which are its most lucrative markets.
The company is testing a revised app for Android users, who represent “a global growth opportunity for us,” Spiegel said, according to the transcript of remarks for a conference call with analysts.
Snap is competing with Facebook Inc. and Alphabet Inc.’s Google for a slice of the digital advertising market. Facebook’s Instagram copied one of Snap’s more popular product features, Stories, and now sees more activity on it than Snap does.
“Spiegel needs to explain his perspective on the Facebook threat,” said Rich Greenfield, an analyst at BTIG. “With Instagram Stories daily active users now dramatically larger than Snapchat and time spent among your core teen/young-adult demo now far more evenly split than a year ago between Instagram and Snapchat.”
Still, Snap sales gained 43% to $298 million in the period ended Sept. 30, topping the analyst average estimate of $283.4 million. The operating loss narrowed to $323.4 million from $461.8 million in the period a year earlier.
Snap estimated fourth-quarter revenue will be $355 million to $380 million. Analysts projected $373 million.