Twitter soars after Q3 revenue and profits top estimates

Twitter Inc. (TWTR) beat market estimates on revenue and earnings for the third quarter of 2018, sending shares surging over 14% during premarket hours on Thursday. As of 8:35 am, the stock was up 11.4%.

Total revenues grew 29% year-over-year to $758 million. Excluding approx. $7 million of revenues in last year’s third quarter from the fully-depreciated TellApart product, revenues grew 30%. The strong revenue performance reflected better-than-expected growth in most products and regions.

On a GAAP basis, the company reported a net income of $789 million or $1.02 per share compared to a net loss of $21 million or $0.03 per share in the prior-year period. Excluding $683 million in deferred tax asset valuation allowances, net income totaled $106 million or $0.14 per share. Adjusted net income was $163 million or $0.21 per share.

Advertising revenues grew 29% year-over-year with a 50% increase in total ad engagements. Cost per engagement dropped 14% from last year. Owned and operated (O&O) advertising revenues grew 36% while non-O&O advertising revenues dropped 31%. Video ad formats were the fastest-growing ad format in the third quarter and comprised more than half the ad revenue.

Average daily active users (DAU) increased 9% year-over-year versus a 14% growth in the prior-year quarter while average monthly active users (MAU) dropped to 326 million, reflecting decreases on both a year-over-year and sequential basis.

The decrease in MAUs were primarily due to the removal of fake and malicious accounts as part of the company’s efforts to clear its platform of toxic content. Policy changes due to the enactment of GDPR also contributed to the decline alongside other factors. MAUs declined both on a year-over-year and sequential basis in the US and internationally.

Earning preview: Q3 will be a test of Twitter’s turnaround strategy

For the fourth quarter of 2018, Twitter expects adjusted EBITDA to be between $320 million and $340 million and adjusted EBITDA margin to be between 39% and 40%. Capital expenditures are expected to be in the range of $60 million and $85 million.

Twitter, along with rival Facebook (FB), have faced flak for hate speech, election-meddling and fake news on their platforms and are taking the necessary steps to deal with these issues. Twitter is trying to increase user engagement through live video-streaming as well as by tailoring content to appeal to various user groups.

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