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A Healthy Twitter Soars

Posted on Monday, Aug 5th 2019

After a decade of losses, layoffs, and declining usage, Twitter finally looks fit. It has had seven straight profitable quarters and usage has been steadily rising in the past two years. Its shares soared 44% following its recent strong quarter.

Twitter’s Financials

For the second quarter of the year, Twitter’s revenue grew 18% over the year to $841 million, ahead of the market’s projections of $829.1 million. Net income was $1.1 billion or $1.43 per share. Non GAAP EPS was $1.58 per share, blowing past analyst estimates of $0.19.

During the quarter, Twitter’s total advertising revenues grew 21% to $727 million driven by 20% growth in ad engagements. Data licensing revenues grew 4% to $114 million. US revenue grew 24% to $455 million while international revenue grew 12% to $386 million.

Among operating metrics, average monetizable daily active usage (mDAU) grew 14% to 139 million.

Twitter plans to retire some ad formats in coming quarters and expects third quarter revenue between $815 million and $875 million. Operating income is expected to be between $45 million and $80 million.

Twitter’s Focus Areas

Twitter’s top priority areas continue to be health, conversation, revenue product and sales, and platform. Twitter’s focus on removing toxicity and improving the health of conversations are seeing some results. It introduced features such as Hide Replies that give the option of hiding replies that do not contribute to a conversation. It uses machine learning to automatically detect abusive content and malicious behavior. As a result of these efforts, there has been an 18% drop in in reports of spamming or suspicious behavior across all Tweet detail pages. It is also leveraging machine learning to deliver more relevant content that has helped increase usage of Twitter on a daily basis.

To measure its success, Twitter is now using a new metric, mDAU, that focuses mainly on daily active users and conversation chains. Its previous metrics of Monthly Active Users (MAUs) and Daily Active Users (DAUs) did not distinguish between users who were served ads and the ones that were not served ads. mDAUs is based on Twitter users who logged in or accessed Twitter on any given day through twitter.com or Twitter applications that are able to show ads.   

Earlier last month, Twitter started rolling out a redesign of its website that focused on making it easier to join conversations and manage direct messages. The new design features a much wider section of the page dedicated to the main news feed, perhaps to pave way for advertisements. The redesign hasn’t been received well.

eMarketer expects Twitter to record ad revenue of $2.97 billion in 2019, giving it 0.9% of the $333.25 digital ad market.

Its stock is currently trading at $42.08 with a market capitalization of $32.34 billion. It touched a 52-week high of $43.48 last week following its results. The stock has climbed from the 52-week low $26.19 that it had fallen to in August last year.

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