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Twitter Beats Q3 Earnings Targets, Discloses That It Has Overstated User Metrics for Three Years

Twitter topped Wall Street estimates for the third quarter of 2017, and gained 4 million monthly active users worldwide for the period — after revealing that it has misstated user counts since the fourth quarter of 2014.

The company again faced financial headwinds, with quarterly revenue of $590 million declining 4% year-over-year, its third straight quarter of top-line declines. Twitter reported a net loss of $21 million, a big improvement over the $103 million net loss in Q3 2016, and adjusted earnings per share of 10 cents.

The results beat analyst expectations and Twitter shares were up more than 12% in premarket trading Thursday. [UPDATE: Twitter stock opened up 13%, to $19.22 per share; its 52-week high is $20.88.] Investors also were encouraged by Twitter’s announcement that the company “will likely” be profitable on a GAAP (generally accepted accounting principles) basis in Q4 — which would be the first profitable quarter in its 11-year history.

For Q3, Twitter had an average monthly active user base of 330 million for the quarter, up 4% year-over-year and an increase of 4 million from the prior quarter. But that was after the company restated MAUs slightly because it incorrectly included users of some third-party apps — that resulted, for example, in a reduction of the monthly user count by 2 million for Q2 2017.

“We discovered that since the fourth quarter of 2014 we had included users of certain third-party applications as Twitter MAUs that should not have been considered MAUs,” Twitter said in a regulatory filing Thursday. Users of those third-party applications were able to send authenticated messages via SMS through Twitter’s systems, but that didn’t relate to activity on the Twitter platform, according to the company’s explanation.

Twitter again touted double-digit growth in average daily active users, but it doesn’t report the actual number of DAUs. Daily actives grew 14% year-over-year, compared with increases of 12%, 14% and 11% over the preceding three quarters on an annual basis.

What’s worrying for Twitter is that revenue declines in the U.S. have accelerated: Total U.S. revenue for Q3 was $332 million, down 11% year-over-year (and compared with a decline of 7%). International revenue for the period was $258 million, up 6%, with particular strength in Japan (which grew 23% year-over-year and contributed $91 million, or 15%, of total revenue).

Video remained Twitter’s biggest ad format, with the company citing strength on in-stream sponsorships and video ads. Twitter is still trying to tap into TV ad budgets for online video and is currently conducting an “alpha” test of programmatic video-ad buying.

On a call with investors, CEO Jack Dorsey reiterated that Twitter is intently focused on improving safety for users and curbing abuse — a chronic problem on the social network. “We’ll be taking a more aggressive stance on our abuse rules and on how we enforce them,” he said. He noted that Twitter has published a road map of upcoming changes to its rules, the first time it’s “shared this level of visibility” into its policies, according to Dorsey.

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