SAN FRANCISCO (Reuters) – Twitter Inc (TWTR.N) posted record profit on Friday with second quarter revenue that beat financial analysts’ estimates and said penalizing misbehaving users this year had paid off even though monthly usage had dropped.
FILE PHOTO: People holding mobile phones are silhouetted against a backdrop projected with the Twitter logo in this illustration picture taken September 27, 2013. REUTERS/Kacper Pempel/Illustration/File Photo
Twitter, like bigger rival Facebook Inc (FB.O), has been under pressure from regulators in several countries to weed out hate speech, abusive content and misinformation, better protect user data and boost transparency on political ad spending.
The social media firm increased removals and suspensions of accounts in recent months, saying this was one reason the number of monthly users fell by 1 million to 335 million in the second quarter from the previous three months.
The United States accounted for most of the decline.
Financial analysts had expected a gain of 1 million users, and the results could harden concerns that Twitter lacks a clear strategy to grow usage and revenue together.
Chief Executive Jack Dorsey said in a statement that daily users grew 11 percent compared to a year ago, saying this showed that addressing “problem behaviors” was turning the service into a daily utility.
The company did not reveal the number of daily users.
Sales of $711 million, mostly from advertising and up 24 percent from last year, exceeded the average estimate of $696 million among analyst research aggregated by Thomson Reuters.
Twitter said it benefited from two weeks of the World Cup in the second quarter, with ads tied to the soccer tournament generating $30 million in revenue.
Profit was $100 million, with a $42 million boost due to a tax accounting move. It marked Twitter’s third quarter in a row and the third three-month period without a loss.
Adjusted earnings per share were in line with the average estimate in Thomson Reuters data at 17 cents per share, although it was not immediately known if the figures were comparable.
Twitter shares have rallied this year on expectations that moves to make the service a friendlier place to interact with other users would also make it more attractive to advertisers.
Shares closed Thursday trading at more than 10 times expected revenue over the next 12 months, according to Thomson Reuters data.
Facebook and Google’s parent Alphabet Inc (GOOGL.O), which have both begun experiencing more gradual revenue growth, trade at eight and six times expected revenue, respectively.
Facebook is still well ahead of Twitter in turning usage into money, generating $5.89 in revenue on average per user in the second quarter compared to $1.79 for Twitter.
Some analysts say Twitter is now better at retaining users but question whether it is doing enough to lure new ones.
Twitter has said increased video programming, including news shows and live sports, and investing in technology that automatically surfaces interesting content with limited user intervention should make the service appealing to first-timers.
Macquarie Research analysts said in a report this month they had not seen proof that product improvements were “driving significant new user growth.”
The latest results bear that out. Twitter said it lost some users due to the introduction of the General Data Protection Regulation in Europe in May but it did not note any revenue impact. Facebook has said it expects to take a moderate hit in coming quarters due to the new rules.
Twitter also saw usage fall after saying it would not subsidize users who accessed its application through text messages without paying messaging fees to wireless carriers.
The company increased capital expenditures guidance for the year to between $450 million and $500 million from $375 million to $450 million as it expands and upgrades the computer infrastructure underlying its service.
Costs related to licensing video and powering automated analysis of user data increased overall expenses 10 percent to $631 million in the second quarter compared with a year ago.
Reporting by Paresh Dave; Editing by Peter Henderson and Edmund Blair