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Twitter Focuses on Improving Platform

Posted on Thursday, Aug 30th 2018

Social media stocks have had a rough time this year amid rising concerns surrounding fake news. More recently, the stocks were in question as the President accused internet and social media firms of political bias and censorship. Despite the issues, Twitter’s (NYSE: TWTR) stock has managed to deliver a turnaround this year. But the battle is far from over as its management continues to grapple with the problems of uncontrollable fake news.

Twitter’s Financials

For the second quarter of the year, Twitter’s revenue grew 24% over the year to $710.5 million, ahead of the market’s projections of $708.5 million. Twitter posted a profit for the third consecutive quarter. Net income came in at $134 million, translating to an EPS of $0.13. The market was looking for an EPS of $0.16.

During the quarter, Twitter’s total advertising revenues grew 23% to $601 million. Within the segment, owned and operated (O&O) revenues grew 29% to $564 million and non-O&O advertising revenues fell 30% to $37 million. Data licensing revenues grew 29% to $109 million.

Among operating metrics, monthly active users grew 9 million to 335 million. But during the quarter, Twitter had conducted a massive cleanup of fake accounts and deleted over 7.7 million accounts. Sequentially, the number of users were down a million. The market was looking for 338.5 million users. Daily active users for Twitter grew 11% over the year, marking this the seventh consecutive quarter to report double-digit growth.

For the current quarter, Twitter expects an adjusted EBITDA of $215-$235 million.

Twitter’s User Engagement Focus

Twitter is focused on improving its overall health and recently announced that it would drive towards improving profitability while investing “in the business, achieving strong revenue growth, and introducing product updates that make Twitter both healthier and easier to use.” It is choosing long-term health of the platform over short-term metrics. Twitter realizes that it will be a while before the cleanup is complete. Till recently, Twitter was only focused on addressing “surface-level symptoms”. But now, it is focusing on addressing the root causes.

It recently launched new tools to address behaviors and manage spam, malicious automation, and platform manipulation. As part of this effort, it announced the acquisition of Smyte, an anti-abuse solutions provider. Smyte was founded in 2014 by Google and Instagram executives to provide tools that stop online abuse, harassment, and spam. Terms of the acquisition were not disclosed. Smyte also offers a dashboard that can help analyze emerging trends on a real-time basis and enable initiation of bulk actions to manage the abuse. Terms of the acquisition were not disclosed.

Twitter also introduced new machine learning algorithms that are now able to organize a conversation around events, thus making it easier for users to find and follow topics, events, and interests. These experiences are now easily accessible on the timeline and allow the users to explore further. The product improvements are reportedly leading to improved daily user base.

But let’s hear from the actual users. How effective are these product improvements? Are the users really finding them helpful? How has the cleaup process affected the average user? Will Twitter manage to keep bringing in the profits?

Its stock is trading at $35.35 with a market capitalization of $26.8 billion. It touched a 52-week high of $47.79 in July this year. The stock has climbed from the 52-week low $16.44 that it had fallen to in August last year.

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