Twitter Inc. stock soared nearly 8% on Wednesday as investors saw promise in the social media company's growing user base, even though the company also reported its first drop in revenue since going public.
The San Francisco company reported $548.3 million in revenue for the three months that ended March 31, a drop of about 8% from the same quarter last year. It was the first time Twitter has reported a year-over-year decline in revenue since it became a publicly traded company in 2013.
But even that could have been worse: Wall Street expected revenue of only $517.3 million, according to a poll by FactSet.
Twitter's results "need to be beating expectations," said Brian Wieser, senior analyst at Pivotal Research. "The momentum has been very, very negative for quite a while."
Analysts said Twitter's stock jumped based on the company's gains in user growth. The number of daily active users jumped 14% from the same quarter last year, and monthly active users jumped 6% to 328 million.
Meanwhile, Facebook has 1.89 billion monthly users and Facebook Inc.-owned Instagram has 600 million monthly users as of December, the latest figures available. More users, of course, means more advertising revenue, as businesses try to reach as many eyeballs as possible.
Twitter saw increased user engagement because of politics and the presidential election, especially President Trump's frequent use of the platform, analysts said.
Michael Pachter, research analyst at Wedbush Securities, said he expected the "Trump effect" on user engagement rates to take effect during the fourth quarter of last year — when Trump was a candidate and later the president-elect — rather than the first quarter of this year. But now, Pachter said, users might be more engaged because Trump has taken office.
Despite that, advertising revenue sank 11% to $474 million. Twitter said new advertising deals represented only a small portion of total expected revenue, though it signed agreements with existing ad partners and agencies.
In its quarterly report, Twitter acknowledged that "there is still work to be done" to translate its growing user base into ad dollars. The company said it expected revenue growth to "meaningfully lag" the audience growth this year but that revenue should increase "over the long term."
Twitter shares rose $1.16, or 7.9%, to $15.82 on Wednesday. They are down 2.9% this year.
The Associated Press contributed to this report.
2 p.m.: This article was updated with Twitter stock's movement.
10:45 a.m.: This article was updated with Times staff reporting and analyst comments.