Despite accelerating revenue growth and a huge improvement in profitability, Twitter (NYSE:TWTR) stock still sold off after its earnings report last week. The main concern seemed to be Twitter's declining monthly active users as management focuses on improving the health of the platform by deleting bad accounts.
As investors consider Twitter's second-quarter results, it's worthwhile to glean some insights from management's second-quarter earnings call. During the call, management discussed a range of important topics, including user engagement, the impact of Twitter's reinvigorated efforts to improve the health of its platform, and more.
Though Twitter CFO Ned Segal refrained from providing any specific metrics on engagement, he did suggest management was happy with how user engagement is progressing.
So when we look at engagement, we look at a number of metrics. And certainly, it's hard to boil it up to one for you, but we continue to be pleased with the trends around engagement.
Notably, investors can infer from Twitter's outsize growth in daily active users (DAUs) compared to its monthly active user (MAU) growth that a higher percentage of users are logging in on a daily basis than in the year-ago quarter, supporting Segal's optimistic commentary on user engagement. Twitter's monthly active users were up 1.5% year over year while daily active users increased 11% over the same timeframe.
A catalyst for revenue
Perhaps one of the most important narratives to surface during Twitter's earnings call was a discussion about how management's renewed efforts to improve the health of conversation on Twitter by removing spammy and suspicious accounts is impacting revenue.
Unsurprisingly, these efforts are negatively affecting Twitter's monthly active user counts, but investors should take the long view on these efforts; deleting bad accounts is serving as a catalyst for revenue, Segal noted.
[W]e don't really see impact on revenue from this. In fact, the impact on revenue ends up being pretty constructive because advertisers embrace the work that we're doing.
They talk about it on the platform. They talk about it when we meet with them. And they vote with their dollars, and they're continuing to invest more on our platform because of the better ROIs that they're getting, because of the increased relevance we're able to deliver to them and because they recognize that a healthier Twitter, as opposed to a disclosed metric, is what's going to deliver a great result for them on the platform. So no impacts to revenue...
Twitter CEO Jack Dorsey added that the company's efforts to improve the health of its platform ultimately are "a growth factor over the long term."
Video is driving engagement
Asked whether video was still a driver of engagement on the platform, Dorsey said it was.
[Video] has always been a great conversation piece. So any time we have video on the platform or within our live experiences, it continues to enrich the conversation. We're building into this quite heavily. ... So we're excited about where we are today with video, but there's a lot more ahead of us that we're excited to do to help people get more into the video and get more out of the conversation.
Video is particularly important for Twitter because not only is it driving greater engagement from users, but it's helping advertisers achieve higher returns on investment (ROI).
For example, Twitter's Video Website Card ad product, which achieved two times higher click-through rates than industry benchmark mobile video ads during initial beta testing, has been an excellent performer for Twitter. "The Video Website Card for us has driven a lot better ROI for advertisers across all parts of the funnel," Dorsey said.