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Twitter layoffs come atop surprisingly strong profit

Despite winning praise for its live-streaming of sporting events, the struggling social network hasn't found its way with meaningful user growth.

"We have a clear plan," says Twitter CEO Jack Dorsey. But the company continues to struggle.

Jaap Arriens, NurPhoto via Getty Images

Twitter is stuck in a rut.

The service, which has amplified the voices of everyone from Katy Perry to Donald Trump, remains a niche player in the social media industry. The company's user growth has flat-lined, and efforts to transform the service into a live-streaming hub have yielded mixed results.

Even Twitter's allure as a platform for voices is starting to fade. Last month, the San Francisco-based company was the object of potential acquirers, like Salesforce, Google, Microsoft and Disney. But no one pulled the trigger.

The reality of Twitter's situation was driven home Thursday when the company announced a new round of layoffs, which had been widely rumored. It will cut up to 9 percent of its work force, with many of the financial charges related to layoffs likely to occur in the fourth quarter.

"We have a clear plan, and we're making the necessary changes to ensure Twitter is positioned for long-term growth," Twitter CEO Jack Dorsey said in a statement.

Growth continues to be an issue. In the third quarter, Twitter reported monthly active users of 317 million -- a key measure of audience. In the year-earlier period, it reported 320 million monthly active users, although 13 million were "SMS fast followers" who use the service via text message. Excluding those users, Twitter grew a measly 3 percent.

The company is focused on becoming more relevant with its notifications and pushing to sort more tweets by relevancy rather than time. Twitter hopes such changes will help with the sluggish growth over the next year. However, the last time Twitter just merely suggested adjusting the site to a curated timeline, #RIPTwitter trended across social media.

Third-quarter revenue was $616 million, up 8 percent year over year, and better than analysts' estimates of $608 million. Profit minus some costs was 13 cents a share, beating the 9 cents estimate of analysts polled by Yahoo Finance.

The actual timing of the earnings release served to heighten interest. Twitter moved its earnings to 4 a.m. PT, rather than the usual 1 p.m. PT. The company said it was responding to analysts' requests to avoid "overlapping" with other companies' earnings announcements. Amazon and Google's parent, Alphabet, also are also reporting results Thursday.

The profit news and the layoffs were greeted warmly by investors. Shares rose 4.6 percent to $18.08 in premarket trading.

Twitter was quick to praise the live-streaming success of two NFL Thursday Night games, which attracted more than 4 million viewers combined, and the streaming of all three US presidential debates, the second of which became the most tweeted political debate yet.

"We've received very positive feedback from partners, advertisers and people using the service, and we're pleased with the strong audience and engagement results," Chief Financial Officer Anthony Noto said in a statement.

Twitter is trying to capitalize on its live-stream viewing audience, up to 15 percent of whom are not active users or even logged in. The fast-paced social network is focused on improving the experience, including bringing in expert commentators to join the live stream and providing tailored experiences for users.

For sports games, Twitter suggested a feature in which users would be grouped with the teams they have supported in comments, instead of a free-for-all system.

"You feel like you're watching the game at a bar, or a stadium or in your home with fans," Twitter Chief Operating Officer Adam Bain said.

A similar feature could also be rolled out for future political debates.

Still, there's been impatience on Wall Street for Dorsey to do more. He returned as CEO last year but has simultaneously served as CEO of payments company Square. That, some say, is a distraction.

"We believe it is imperative for Mr. Dorsey to come on board full-time given his sway as a founder," James Cakmak, an analyst at Monness, Crespi, Hardt, said in a note earlier this week. "If he's not willing to do so, then we argue Twitter needs to find someone else who will."

SunTrust analyst Robert Peck said earlier this week that the fourth quarter will be "make or break." The company's all-in commitment to "live" programming would be visible or serve to attract a buyer, he said.

"If current trends continue, we think M&A is inevitable," Peck said, "albeit potentially at lower prices."

First published on October 27 at 4:31 a.m. PT.
Correction, 4:43 a.m. PT: The latest consensus estimates for revenue and earnings were added.
Update, 7:44 a.m. PT: Details added on Twitter's plans for growth.