Twitter Posts Strong Q2 Earnings, but Monthly Users Drop by 1 Million Amid Cleanup Effort

Twitter Stock
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Twitter turned in its third straight quarter of profitability for Q2 of 2018, beating Wall Street expectations for revenue and earnings. But investors were focused on Twitter’s lackluster user metrics: Its monthly user base dropped by 1 million sequentially, to 335 million worldwide, as Twitter continues efforts to eliminate fake accounts and reduce harassment on the platform.

The poor showing on user growth drove Twitter’s stock down in pre-market trading Friday by as much as 15%.

Twitter said it expects monthly active users to decline in Q3, as well. “Based on our current level of visibility, we expect the decline to be mid-single-digit millions of [monthly active users],” the company said in its investor letter. In addition, the company said it plans to continue to grow its headcount, targeting an increase of 10%-15% by year-end, which will mean operating expenses will increase in the second half of 2018.

Total revenue hit $711 million in Q2, up 24% year-over-year, and Twitter posted net income of $100 million (or 13 cents per diluted share), and a net margin of 14%.

“Our second quarter results reflect the work we’re doing to ensure more people get value from Twitter every day,” Twitter chief Jack Dorsey said in prepared remarks. “We want people to feel safe freely expressing themselves and have launched new tools to address problem behaviors that distort and distract from the public conversation.”

Twitter’s average monthly active user base was 335 million for Q2, up 9 million year-over-year and down 1 million quarter-over-quarter. The company said that was the result of “decisions we have made to prioritize the health of the platform, to not move to paid SMS carrier relationships in certain markets and, to a lesser extent, GDPR,” referring to Europe’s General Data Protection Regulation law, which took effect May 25.

Average U.S. MAUs were 68 million for Q2, flat with the year-earlier period and down from 69 million in Q1. Average international MAUs were 267 million for Q2, versus 258 million in the same period of the previous year and 267 million in Q1.

Twitter again touted daily active user growth. It doesn’t disclose DAUs but said those remain well below 50% of monthly active users. In Q2, daily active users increased 11% year-over-year, with double-digit growth in five out of its top 10 global markets.

In its letter to shareholders, Twitter alluded to a recent report by the Washington Post that it was purging fake (“bot”) accounts at a rate of more than 1 million per day.

Twitter said that when it suspends accounts, many of them have already been excluded from its MAU or DAU tallies, “either because the accounts were already inactive for more than one month at the time of suspension, or because they were caught at signup and were never included in MAU or DAU.”

The company said it will continue to prioritize its initiatives to eliminate fake accounts and improve tools for dealing with harassment and abuse, “as we believe the best driver of long-term growth of Twitter as a daily utility is a healthy conversation.” In June, Twitter acquired Smyte, a company that specializes in spam prevention, safety and security technologies.

According to Twitter, new tools to address “behaviors that distort and distract from the public conversation” introduced in Q2 have resulted in a 4% drop in abuse reports from search and 8% fewer abuse reports from conversations.

Twitter’s Q2 ad revenue grew 23%, to $601 million, with video ads continuing to account for more than half of that. U.S. advertising grew 9%, to $293 million. International ad revenue grew 40%, to $308 million — the first time non-U.S. sales represented the majority of total ad revenue. Twitter said Asia-Pacific was again its fastest-growing region, driven by growth in video in Japan and “performance ad products in our China export market.”