|Twitter Overstated Number of Users for Three Years|
Social-media company still reports better-than-expected user growth; shares jump as loss narrows and earnings forecast is raised
By Georgia Wells
The Wall Street Journal
Updated Oct. 26, 2017 9:52 a.m. ET
Twitter Inc. said Thursday it overstated its number of users for the past three years, even as it reported modest user growth for the third quarter.
The social-media company’s shares jumped nearly 14% in early trading after it reported a narrower loss in the third quarter and raised its earnings forecast for the fourth quarter.
“Our work to increase relevance and make Twitter easier is making an impact,” Twitter Chief Executive Jack Dorsey said on the company’s earnings call.
Mr. Dorsey attributed the user growth to improvements to the company’s short-messaging service that it made in the past quarter, noting that Twitter is focusing increasingly on personalizing the content that appears in users’ feeds.
For years, content in the timeline was listed chronologically without algorithmic tweaks, but now the company is expanding its team of artificial intelligence specialists responsible for determining new content users might want to see.
“We’re hiring, and we continue to look for leadership in all these areas,” Mr. Dorsey said.
Meanwhile, Twitter said it realized during the third quarter that it had been including users of a service for third-party apps as monthly users that should not have been counted, a spokeswoman said.
Twitter restated its users for the past three quarters—revising them down by one million to two million—but said it didn’t have user data going back further than that.
Twitter in the third quarter added four million monthly users, beating analyst expectations of just over one million, and bringing its total of monthly users to 330 million. According to adjusted numbers for prior quarters, however, the number of Twitter’s monthly users actually shrank in the second quarter for likely the first time since 2015, by one million users. Previously Twitter had said its user growth was flat in the second quarter.
Revenue in the third quarter declined 4.2% to $590 million, compared with $616 million a year earlier. Twitter narrowly beat analyst revenue expectations of $587 million, according to FactSet. Under generally accepted U.S. accounting rules, or GAAP, Twitter posted a loss of $21.1 million, its smallest loss as a public company, compared with a loss of $103 million a year ago.
Twitter’s error in counting users tarnishes the company’s credibility during a critical period. The growth of rival Snap Inc.’s Snapchat has increased competition for advertising dollars. Twitter is facing scrutiny on multiple fronts for how it handles problem accounts on its social network, including people posting abusive content and alleged Russian manipulation
Itreally is make-or-break time for Twitter,” said Jim Cridlin, global head of innovation at Mindshare, a unit of advertising agency giant WPP PLC.
Twitter said the error in counting monthly users didn’t impact its measure of daily users, which grew 14% in the quarter. Twitter doesn’t disclose its raw number of daily users, but said fewer than half of its 330 million monthly users log on daily.
The service that erroneously counted the monthly users, Digits, allowed people to log into other apps using their credentials from Twitter. Alphabet Inc.’s Google bought Digits from Twitter earlier this year as a part of a larger acquisition of developer tools.
Twitter believes the impact of the error was smaller before this year because Digits had fewer users, a spokeswoman said. Twitter said it doesn’t have the data to reconcile its user figures going back further than the end of 2016 because of its policy of not storing certain kinds of information long-term.
For the fourth quarter, Twitter projected adjusted earnings before interest, tax, depreciation and amortization between $220 million and $240 million—a more ambitious target than the $197 million analysts expect, according to FactSet. If Twitter hits the high end of that range in the fourth quarter, it could record its first quarterly profit since going public in late 2013, a spokeswoman said. A year ago, Twitter publicly articulated the goal of “driving toward” profitability in 2017.
“We feel really good about the progress we’ve made,” said Twitter’s chief of operations, Anthony Noto. “We’re ahead of where I would have guessed back in January today.”
Write to Georgia Wells at Georgia.Wells@wsj.com