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Twitter Stock Drops Sharply on Lower Monthly Active Usage

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Twitter on Friday reported higher second-quarter revenue, but lower monthly active usage as it purges "fake" accounts, which sent its stock down sharply in pre-market trading.

Before the stock market opening bell, the San Francisco-based social media company, led by CEO Jack Dorsey, posted earnings per share of 17 cents, which matched the Wall Street consensus estimate, according to Zacks Investment Research.

Twitter posted a record quarterly net income of $100 million, compared to a loss of $116.4 million in the year-ago period. That marks the social media platform's third consecutive quarter of profitability.

And second-quarter revenue was up 24 percent to $711 million from a year-earlier $574 million. That had Twitter beating an analyst expectation of $698 million. Advertising revenue came to $601 million, up 27 percent from the same quarter last year.

But with the number of people on its platform always in focus, Twitter recorded 335 million monthly active users during the latest quarter, compared to a year-earlier 326 million and down slightly from 336 million during the first quarter. The latest quarter performance missed a Zacks consensus estimate for 338 million monthly average active users.

That sent Twitter shares tumbling by $6.17, or more than 14 percent, to $36.77 in pre-market trading as investors reacted to the miss in monthly active user growth. 

Twitter pointed to clean-up efforts to improve the information quality of the platform by deleting "malicious automation, spam and fake accounts" and adopting the General Data Protection Regulation in Europe to help explain the slight drop in monthly active usage during the most recent quarter.

"We continue to invest in improving the health of the public conversation on Twitter, making the service better by integrating new behavioral signals to remove spammy and suspicious accounts and continuing to prioritize the long-term health of the platform over near- term metrics," the company said in a shareholders letter that accompanied its latest financial results.

At the same time, moves to purge fake accounts occurred after the close of the second quarter, with more of the impact likely to be felt in the current financial quarter. "As a result of our health work, decisions not to renew or move to paid SMS carrier relationships in certain markets, and our decision to allocate resources towards GDPR and health, monthly active usage could decline on a sequential basis in the third quarter," Twitter said.

Dorsey was asked during a morning analyst call whether muting or blocking fake accounts would boost subscriber retention and audience growth into the future. "We do believe that our health work and a focus on improving the public conversation is a growth factor, over the long term. We want to ensure we're building this into our DNA, and can measure it and be held accountable," he answered.

Daily active usage was up 11 percent year-over-year, the company reported, though Twitter did not break out a number.

This article was originally published by The Hollywood Reporter.