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Twitter beats earnings expectations, but then warns its revenue growth will slow

Twitter beats earnings expectations, but then warns its revenue growth will slow
The Twitter logo at the New York Stock Exchange. (Richard Drew / Associated Press)

Twitter Inc. announced Wednesday that it had stayed profitable for the second quarter in a row and beat first-quarter earnings estimates — but then it warned that its revenue growth will slow, and investors recoiled.

The social media company's stock leaped as much as 14% before the market open when it released its quarterly earnings.

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Then it said it would be difficult to produce growth rates in the second half of the year that top those of 2017, when a broad-based recovery began. As a result, revenue growth will resemble that of 2016, it said.

That sent the shares tumbling as much as 7.6%. They recovered somewhat, ending the day down 2.4% at $29.75.

The caution put a damper on the nascent turnaround that saw Twitter remain in the black for the second straight quarter after more than 16 quarters of losses. Twitter's push into live video and more personalized content appears to be starting to pay off, boosting revenue and profit by attracting users and advertisers. Sales jumped 21%, the most in two years, to $664.9 million last quarter, the company reported. And it said monthly active users rose to 336 million, up 6 million from the prior quarter.

"Twitter is still in rebuilding credibility mode with investors and advertisers, so it's important they keep demonstrating momentum relative to expectations," said Richard Greenfield, an analyst at BTIG. "They are continuing to position themselves so expectations don't get out of control."

Monthly users grew only 2.8% from the year-earlier quarter, the slowest pace in two years. That contrasts with Facebook, which has six times as many users as Twitter and increased its monthly users 14% in the fourth quarter. Facebook Inc. reported better-than-expected first-quarter revenue Wednesday.

And more of Twitter's growth is now coming from international markets as the U.S. gets saturated. Monthly active users in the U.S. increased by 1 million from the fourth quarter to 69 million. Internationally, that monthly figure grew to 267 million users from 262 million. Revenue in the U.S. increased 2% year-over-year, while international revenue jumped 53%.

Chief Executive Jack Dorsey, who also runs mobile payment platform Square Inc., has focused on making Twitter more useful, including streaming programming such as NFL highlights and recaps of series such as "Game of Thrones." The company is applying artificial intelligence to put the most relevant tweets at the top of people's feeds, and has added features that curate tweets, photos and videos around events. Twitter said daily active users increased 10% last quarter, marking the sixth consecutive quarter of double-digit increases. The company doesn't give a total number of daily active users.

Dorsey has been honing the platform into a place to see "what's happening now," and positioning the site as the place to find out about live events such as news and concerts.

Awareness of Twitter's brand has also gotten a boost from frequent tweets by public figures such as President Trump, who is among the platform's most high-profile users. Global events such as the Olympic Games and government elections also help drive user growth.

And as Twitter has worked to root out terrorist content and abusive trolls, advertisers' perceptions of the platform are also improving, according to a survey conducted by RBC Capital Markets and Ad Age.

"Twitter's video ad product continues to perform well as advertisers continue to look for higher quality online video impressions," wrote Morgan Stanley analyst Brian Nowak, a longtime Twitter bear who upgraded the stock to equal-weight last week, citing improved personalization that is keeping users on Twitter longer.

Twitter posted net income of $61 million, or 8 cents a share, in the first quarter, marking its second quarter of profit. That beat analysts' projections for a net loss of 2 cents, on average. Profit excluding some costs was 16 cents a share, exceeding estimates for 12 cents.

The company gave a second-quarter outlook for adjusted earnings before interest, taxes, depreciation and amortization of $245 million to $265 million. Analysts had expected about $218 million.

Bloomberg produces TicToc, a global breaking news network for the Twitter service.

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Although Twitter seems to have found a path for growth, Dorsey is being pressed to follow in the footsteps of Facebook CEO Mark Zuckerberg and testify before Congress about data privacy. Twitter, Facebook and Google are facing calls for potential regulation on internet companies after revelations that political consulting firm Cambridge Analytica harvested private data from some 87 million Facebook users. Twitter itself was found to be overrun by Russian bots during the 2016 U.S. election cycle.

Twitter continues to address criticism that it hasn't done enough to fight the spread of misinformation, harassment and manipulation from automated posts. Last month, Dorsey asked the public to propose solutions to make the social network a nicer place by measuring "collective health, openness, and civility of public conversation." Twitter is working on a "transparency center" to show how much political campaigns spend on advertising, and the company endorsed the Honest Ads Act, a Senate bill that would subject online political ads to the same sort of disclosure rules that govern similar content on TV and radio.

Twitter said it has limited the ability of users to perform coordinated actions across multiple accounts, which has resulted in roughly 90% fewer users creating fake or automated engagement through the social media dashboard TweetDeck. The company said that in the first quarter, it removed more than 142,000 applications connected to Twitter that violated developer rules and were collectively responsible for more than 130 million "low quality" tweets during the same period.

UPDATES:

4:10 p.m.: This article was updated throughout with Twitter's comment about revenue growth, Twitter's stock movement and additional details.

This article was originally published at 6:05 a.m.

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