Image source: Twitter.

Twitter (TWTR) stock climbed about 2.5% on Thursday morning following the company's third-quarter earnings release. Better-than-expected financial results and meaningful user growth were signals the company's efforts to reinvigorate growth may be getting some traction.

The raw numbers


Q3 2016

Q3 2015


$616 million

$569 million

Net income

($103 million)

($132 million)




Adjusted EPS



Data source: Twitter quarterly SEC filings. Table source: author.

Across the board, Twitter's third quarter marked a financial improvement for the company.

Twitter's $616 million in revenue was up 8% year over year, driven by product improvements, organic growth, and marketing initiatives. While this is a significant deceleration compared to the company's 20% year-over-year revenue growth in its second quarter, it's higher than the $590 to $610 million range management guided for going into the quarter. In addition, the revenue is also up sequentially from Twitter's $602 million in revenue in its second quarter.

With stock-based compensation growing slower than revenue and R&D spend actually pulling back slightly compared to the year-ago quarter, Twitter was able to narrow its net loss from $132 million in the third quarter of 2015 to $103 million in the third quarter of 2016.

Third-quarter highlights

  • After returning to user growth in its second quarter, this important trajectory was maintained in its third quarter. Monthly active users were 317 million, up 3% year over year and 1.3% sequentially.

Chart source: Twitter.

  • Daily active users were up 7% year over year. This is notably an acceleration from Twitter's 5% increase in daily active users in its second quarter and its 3% growth in its first quarter.
  • Year-over-year growth in tweet impressions and time spent on Twitter accelerated for the second quarter in a row.

Looking ahead

Going forward, management pointed to several efforts and forecasts worth taking a closer look at.

Layoffs: In a move to "create greater efficiency" as Twitter aims to achieve GAAP profitability next year, the social network announced an organizational restructuring and layoffs of about 9% of its workforce. The reorganization will take place during the fourth quarter.

"The restructuring allows us to continue to fully fund our highest priorities, while eliminating investment in non-core areas and driving greater efficiency," management explained in Twitter's third-quarter shareholder letter.

Topic-based onboarding. Image source: Twitter.

More opportunity for user and engagement growth: Management said it believes there's still "significant opportunity" for further growth in audience and engagement. To capitalize on this opportunity, the company is refining its core service in "four key areas: onboarding, the home timeline, notifications and Tweeting," the company explained.

A reacceleration in advertising revenue growth: A "meaningful improvement" in advertising metrics during the quarter has management optimistic about the trajectory of its advertising revenue.

"We believe that accelerating growth in audience and engagement will help reaccelerate growth in our ads business over time," management noted.

To reinvigorate its advertising revenue, which accounts for about 88% of total revenue, the company is focusing on building out robust options of quality ad products for advertisers, boosting return on investment on this ad products initiative, and better scaling its advertising reach across the social network's broad, and unique, audience.

Overall, Twitter's third-quarter pointed to some important progress on key metrics, suggesting some of management's initiatives that began with the 2015 return of the company's founder and CEO Jack Dorsey are taking hold. Of course, investors will want to look for sustained progress over the next twelve months to get a better idea of whether or not Dorsey's tactics can drive sustainable growth in per share intrinsic value, but these results are encouraging nevertheless.