Twitter's advertising, data revenue climbs in Q3

With its stock price soaring Thursday morning, Twitter has finally shifted investor focus away from user numbers and on to platform monetization.

Twitter reported better-than-expected third quarter financial results Thursday morning, proving that it could increase revenue and profit despite a decline in user numbers. The key to Twitter's revenue success boils down to its data and advertising strategy, which has helped the company shift investor focus away from user numbers and on to platform monetization.

Twitter said that its monthly active user (MAU) count -- the most watched user metric -- was 326 million in Q3, a bit below the 330.1 million expected and around 1 percent less than the year-ago quarter.

However, Twitter's revenue went up 29 percent year-over-year, and advertising revenue climbed to $650 million, also an increase of 29 percent year-over-year. Twitter also saw growth in its data licensing business, where revenue climbed 25 percent to $108 million.

Twitter told analysts last quarter to expect a sequential drop in MAUs due to a combination of account removals, GDPR compliance changes, and its decision to not move to paid SMS carrier relationships in certain markets. The company insisted that its crackdown on bots and fake accounts was only partially to blame for the user decline, since inactive or potentially spammy accounts were never included in its MAU tally in the first place.

Nonetheless, Twitter said it removed about 70 million accounts in May and June this year. The company has also doubled the number of accounts removed for violating spam policies as compared to last year.

On the conference call this morning, Twitter CEO Jack Dorsey detailed additional platform "health" initiatives designed to curb abuse, misinformation, echo chambers and manipulation.

Dorsey said Twitter saw a 20 percent decrease in suspicious sign-ups since introducing more stringent account setup requirements. Most of the spammy signups happened on the web, leading to the decrease in web daily usage and the double-digit growth on mobile daily usage.

"We tend to see a lot more of the, sort of, scripted automation coming through the web versus the API," Dorsey said. "So this is pretty meaningful in terms of our objective around increasing health. And as an another reminder, we do see health as a growth factor over the long term."

The growth factor Dorsey is referring goes back to user engagement. The idea is to bolster confidence in Twitter as a source of information and place for conversation. In doing so, Twitter can sell itself to advertisers that want to use the platform to launch products or support a brand.

"One of our jobs right now is to make sure that we're understanding people's interest as soon as they sign up and matching them with the right events and the right conversations as quickly as we can," Dorsey said.

He continued: "We believe we have very different dynamics than what you would find on the typical social network. Twitter has become one of the best places to launch something new, whether it be products service or something around your brand. Not only to launch it but also to see the conversation, have a direct conversation with your customers or potential customers. and we're seeing that in our results as well."

Looking closer at the numbers, Twitter posted Q3 non-GAAP earnings of 21 cents per share on revenue of $758 million, up 29 percent year-over-year.

Wall Street was expecting Q3 earnings of 14 cents a share with $702 million in revenue. Twitter's stock price was up nearly 15 percent Thursday morning.