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Twitter’s sales and profit up, but shares plunge 11% on user growth numbers

Newly named permanent CEO Jack Dorsey is trying to shake up Twitter.

Newly named permanent CEO Jack Dorsey is trying to shake up Twitter.

(Mary Altaffer / Associated Press)

For Twitter last quarter, it was two steps forward and two steps back.

The San Francisco microblogging company — still struggling to prove its relevance nine years in — reported better-than-expected revenue and profit for the third quarter Tuesday. But lackluster user growth and a disappointing outlook for the rest of the year caused shares to plummet more than 11% after hours.

It was Twitter’s first earnings report since co-founder Jack Dorsey regained his position as permanent chief executive, and he sought to provide a high-level overview of his plans to overhaul the company. His three-pronged strategy revolves around simplifying Twitter’s notoriously complicated service, better communicating its value and pushing for faster and more disciplined execution.

By attracting new users and enticing current ones to become more active on Twitter, the hope is that more advertisers — and more revenue — will follow.

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Twitter has routinely disappointed Wall Street with lackluster financial results and unclear direction. Although Dorsey has promised to better clarify Twitter’s purpose, industry analysts and the more than 3,000 viewers who tuned in to watch a live stream of the company’s earnings call got vague statements and little insight into what, specifically, he has planned for the coming months.

“We will focus a lot of our energy on a very simple, easy, straightforward experience,” Dorsey said during the call. “We’re not going to get into details of the road map in particular.”

Twitter’s sluggish user growth remains the primary concern for investors and analysts.

For the third quarter, Twitter revealed that average monthly active users totaled just 320 million, an increase of 11% year over year and up slightly from 316 million in the previous quarter. Analysts had expected 324 million users.

“You need to make it relevant, and I heard nothing from that entire hourlong call about what they’re going to do to make nonusers use it,” said Michael Pachter, an analyst at Wedbush Securities. “I’m really not sure yet what Dorsey is going to do. He didn’t tell us anything.”

Additionally, executives provided no commentary on usage among existing users, leading analysts to surmise that engagement — basically, the time spent on Twitter — is not where it should be.

The last few months at Twitter have brought about big changes at the top.

Dorsey, 38, stepped in as interim CEO after Dick Costolo stepped down on July 1. Since then, Dorsey has been aggressive in his attempts to shake up the company, rolling out new consumer-facing and advertising products, laying off 8% of the company’s workforce and bolstering his executive team.

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He was named permanent CEO this month; Dorsey is also founder and CEO of mobile payments company Square and will run both companies.

On Tuesday, Dorsey repeatedly lauded Twitter’s new Moments feature, which aims to cut through some of the noise on Twitter by giving users a simple, curated way to see what’s currently happening around the world. Moments are organized by topic or event, such as the World Series or movies or holidays.

“Moments represents a fundamental shift in our thinking,” he said, saying the feature makes the platform easier to understand and gives users a more approachable view of events.

In the future, he hinted, Twitter might roll out ways for users interested in niche issues to better connect with one another, and to make it easier for users to direct criticism, complaints or compliments to retailers and other brands.

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Dorsey also said the company was making “big bets” on not just Twitter but its video-centric brands Periscope and Vine. Those three products “represent our largest opportunities for growth.”

“Of course we’ll be looking to turn both of those into businesses and they’ll complement Twitter in the right way and at the right time,” he said.

But in the near term, the core business still looks soft: Twitter said it expects the current quarter’s revenue to fall between $695 million and $710 million, well below FactSet Research Systems’ consensus of $741 million.

In after-hours trading, Twitter shares were down more than 11%. In regular trading, shares closed up 45 cents, or 1.5%, to $31.34.

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There were some bright spots last quarter.

Twitter reported revenue of $569 million, up 58% year-over-year and above the previously forecast range of $545 million to $560 million. It posted a loss of $132 million; adjusted for one-time events, it had a profit of $67 million, or 10 cents a share. In the third quarter last year, it had an adjusted profit of $7 million, or 1 cent a share.

Analysts polled by FactSet had expected revenue of $560 million and adjusted earnings of 5 cents a share.

Twitter: @byandreachang

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