There was a time when monthly active users were the center of attention of every one of Twitter's (TWTR +0.00%) quarterly earnings reports. After all, revenue growth seemed to slow as monthly active user growth was slowing. But those days are apparently in the past, as Twitter stock soared on Thursday after the company reported a quarter that included both a year-over-year and sequential decline in monthly active users.
Are investors overlooking an important aspect of Twitter's business? Or are there simply more important areas for investors to watch now? The latter is the case -- and here are two reasons why.
Image source: Getty Images.
1. Platform health is Twitter's No. 1 priority
Twitter said during its earnings call that improving the health of its platform is currently the company's No. 1 priority. Of course, this is clear from the fact that Twitter's monthly active users fell by 9 million sequentially as the company made efforts to remove "spammy and suspicious" accounts.
But investors shouldn't view these efforts as a temporary setback for Twitter. On the contrary, investors should look forward to the company's moves to clean up its platform.
Just hear out Twitter CEO Jack Dorsey on the subject:
And as another reminder, we do see health as a growth factor over the long term. This is an extremely important initiative to us not only for the experience of Twitter, but we believe the long-term growth of a platform, and we're really proud of our progress so far.
Dorsey said Twitter's 9% year-over-year growth in daily active users, despite its efforts to remove bad accounts, is evidence of how improving the health of its platform is benefiting its business.
2. Daily active users are key
Given Twitter's tactics to remove bad accounts on its platform, it was unclear whether the company's daily active user growth would take a hit or not in Q3. If Twitter's efforts to remove its spammy and suspicious accounts did negatively impact its daily active user growth, it wasn't by much. Twitter's 9% year-over-year growth in third-quarter daily active users was only slightly lower than its 11% growth in the metric in Q2.
Still, some investors may continue to wonder if these efforts will negatively affect Twitter. After all, the company guided for a further decline in monthly active users in Q3.
However, based on Twitter CFO Ned Segal's optimism about the company's upside potential in daily active users, it doesn't seem likely that the metric is going to suffer.
Segal pointed out a couple of opportunities for daily active user growth. First, the CFO pointed to the fact that daily active users are still "well less than half of [monthly active users]." Segal also noted that the company has a healthy "top of funnel" when it comes to its users.
Segal explained:
We still see 2 million or more people come to the platform every day who have not been on the service for a month or more; a third of them who have never been on the platform before. And we look at that and see lots of opportunity to help them find what they're looking for faster, so that they will stay longer and come back more frequently.
Finally, Segal importantly emphasized that management is specifically focused on increasing daily active users. "[O]ur purpose is to serve the public conversation and growing daily active usage on the platform is critical to our long-term success, it's the lifeblood of the company."
A holistic view of Twitter's business, including its surging revenue and earnings-per-share growth, show a company that is firing on all cylinders -- and management's decision to stop emphasizing monthly active user growth is key to this reinvigorated growth.
