Here’s Why Twitter’s Stock Is Climbing After Its Earnings Report

Twitter has been beaten up pretty badly by investors over the past six months, after a number of potential acquisition offers failed to materialize and the company’s finances continued to sour. But its latest update contained a few rays of hope for those who still believe.

The most obvious of these bright spots was in the area of user growth. After several quarters of showing flat or anemic growth, Twitter said that it added 9 million new monthly average users in the latest quarter, the largest increase since 2015. That growth was much higher than expected.

When it comes to daily average users, Twitter doesn’t provide an actual figure, but it said the total grew by 14%, for the fourth consecutive quarterly increase.

With 328 million monthly users, the service still pales by comparison to either Facebook or Instagram. The latter announced on Wednesday morning that its monthly average user base hit the 700 million mark, up by more than 100 million in just the last four months.

And where did Twitter’s new users come from? Some company-watchers theorized that it was a delayed reaction to the election of Donald Trump, a noted Twitter devotee. But Twitter said it was a result of changes it has made to the way it displays a user’s timeline, such as showing tweets a user may have missed, instead of displaying them chronologically.

The good news helped push Twitter’s stock up by more than 11% on Wednesday following the report, the largest increase since the company was the subject of takeover speculation in October.

In classic Twitter fashion, however, the rest of the company’s quarterly news was much more of a glass-half-full, glass-half-empty kind of situation. For example, Twitter’s revenues fell on a year-over-year basis for the first time, dropping by 8% to $548 million.

Optimists, however, noted that this was better than most Wall Street analysts were expecting — they had been projecting a revenue decline of more than 10%. Twitter also managed to report earnings (excluding certain expenses) that were much better than expected, making 11 cents a share instead of the one cent most analysts projected.

At the same time, the company warned that revenue could be weak over the next few quarters, in part because Twitter is winding down a number of advertising products that weren’t performing.

The company’s forecast for the current quarter was significantly worse than most analysts were expecting. Twitter said it is looking for adjusted earnings of between $95 million and $115 million, but the consensus estimate from Wall Street is $141 million.

Instead of direct-response style ads such as Promoted Tweets, Twitter said it is putting more of its resources into video advertising, where it has had some success with major brands like Anheuser-Busch. But the benefit of investing more in that market could take some time to make it to the balance sheet, the company said.

Twitter is betting that it can become a place for live video streams of all kinds, including sporting events like soccer and baseball, as well as news events like the Grammy Awards and the election campaign, where it partnered with a number of broadcasters to stream their coverage.

The company said it streamed 800 hours of live video in the last quarter, and has a number of deals in the works to increase that number. Twitter is also said to be working on a way to allow cable subscribers to log in to their accounts so that they can watch cable programming through Twitter and also follow along with tweets about the content.

Although this focus appears to be paying off for Twitter in the short term, analysts note that when it comes to doing deals for events like the National Football League, the company is at a serious disadvantage compared with much larger players like Facebook and Amazon.

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