Twitter Inc.'s increased efforts to hold onto new users succeeded in the second quarter, the company reported Tuesday, providing investors some confidence that the social network can persuade more Internet users to join its flock.
Shares of the company shot up more than 29% in after-hours trading, hovering around $50 a share after closing at $38.60. The price had topped $73 in December, a month after Twitter went public, but it’s hit turbulence since then amid slumping user growth.
Tuesday's jump followed an earnings report that analysts said showed Twitter might be back on track in its ambitious quest to produce the Internet's largest audience.
"I don’t think there’s much of a question of whether it’s good platform for advertisers," said Raymond James analyst Aaron Kessler. "I think investors want to know how big can Twitter get."
Worldwide active users rose 6% from the previous quarter to reach 271 million, including 60 million accounts in the U.S. Analysts had expected about 267 million users on a 5% growth rate similar to recent quarters.
The company has been struggling to come up with measurements that better position it with rival Facebook Inc., which lists nearly five times as many active users. On a conference call, Twitter's Chief Executive Dick Costolo said that for every active user, the social network has about two or three people who are seeing Twitter posts pasted on other websites or are visiting but not logging in.
"Our total audience and reach represent a significant opportunity," Costolo said, calling Twitter "the world’s real-time information network."
Twitter has seen some of its greatest usage during live sporting events, and analysts said some of the second-quarter lift came from the FIFA World Cup. Costolo instead attributed the largest number of net new active users in five quarters to measures designed to get new users hooked on Twitter faster, such as tapping into their smartphone contacts list and sending out email alerts.
High advertiser demand surrounding the World Cup did boost quarterly revenue, Costolo said. Sales surged to $312 million, rising 125% from a year earlier and far surpassing forecasts of about $283 million. Twitter's said sales for the year should be about $1.3 billion.
Social networking on mobile devices has accounted for 31% of the growth in Internet usage, analytics firm ComScore reported last month. As eyeballs shift, ad dollars have followed. More than 70% of Twitter's revenue came from mobile advertising.
Analysts expect monetization to remain strong, but it's unclear whether the rebound in user growth will carry on. Partnerships with entities such as the National Football League could be key without any events such as the Oscars, Super Bowl or World Cup in the second half of the year.
"If they eventually just have a niche audience, the platform is more at risk long-term," said Wedbush Securities analyst Shyam Patil. "But a large platform with a big audience, like Facebook, that's what investors want."
Twitter posted second-quarter net income of $15 million, or 2 cents a share, compared with a net loss of $16 million a year earlier.
The earnings report follows a tumultuous quarter for Twitter’s executive ranks. Two executives, including Chief Operating Officer Ali Rowghani, resigned. The chief financial officer and the senior vice president of engineering were replaced. Analysts saw the changes as part of Costolo’s effort to speed up the building of new features to attract users to Twitter and keep them coming back.
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