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Twitter Drops 9 Million Users in Q3, Stock Soars After Topping Earnings Forecasts

Twitter shed 9 million user accounts in the third quarter of 2018 — and, as the company spun it, that’s a really healthy sign.

The stock surged as much as 15% in premarket trading after Twitter reported better-than-expected profit and a revenue increase of 29% year-over-year thanks to strong ad sales. [UPDATE: Twitter shares ended the day up 15.5%, to $31.80 per share.]

It was the fourth straight quarter of profitability for Twitter, after a decade of dripping red ink. The company’s average monthly active users for Q3 were 326 million, down from 335 million in the previous quarter. MAUs in the U.S. declined 1 million sequentially, to 67 million.

A key data point Twitter called out: It’s seen a 20% quarter-over-quarter decrease in successful signups since it rolled out new initiatives to reduce spammers, bots and other suspicious user accounts. The company said monthly user count dropped in large part because of Twitter’s efforts to clean up the platform, along with continuing impact of complying with Europe’s General Data Protection Regulation privacy law and turning down paid SMS text-messaging deals with carriers in certain markets.

“We do see health [of the platform] as a growth vector over the long term,” Twitter chief Jack Dorsey said on the Q3 earnings call. The company is focusing on making the social network “more conversational, which is Twitter’s superpower,” he added.

For the fourth quarter, Twitter expects another sequential decline in monthly active users, in the “mid-single-digit millions” — again, the company emphasized that that’s related to its measures to improve the overall quality of user engagement.

Twitter reported Q3 revenue of $758 million and adjusted net income of $106 million (or 21 cents per share). That handily beat analyst consensus estimates of $702.6 million in revenue and adjusted EPS of 14 cents.

“We’re achieving meaningful progress in our efforts to make Twitter a healthier and valuable everyday service,” Dorsey said in prepared remarks. “This quarter’s strong results prove we can prioritize the long-term health of Twitter while growing the number of people who participate in public conversation.”

Twitter noted in its investor letter that users “removed for health reasons are not typically valuable from an advertising perspective.” It said spammy and suspicious accounts continue to represent less than 5% of monthly active users in Q3.

What’s more indicative of Twitter’s user base are average daily active users, according to Twitter — but the company does not report that metric. Instead, it touted another quarter of DAU growth, up 9% year-over-year in Q3 and showing double-digit growth in five out of its top 10 markets. Twitter said daily active users are still well less than 50% of its average monthly user accounts, saying that shows an opportunity ahead to increase daily usage.

Video again accounted for more than half of Twitter’s ad revenue in Q3, and overall ad engagements were up around 50% year over year. Cost per engagement (a model in which advertisers pay only for actual impressions) dropped 14%, primarily because of the shift to video, according to the company. Twitter’s total yield per impression improved in Q3 thanks to a larger proportion of higher-yield ad formats sold as well as higher click-through rates across most ad formats.

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