Twitter’s Cleanse Could Wipe Away Skin and Dirt

Spring cleaning apparently lasts all year long at

Twitter
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TWTR 8.92%

The social-media company reported solid second-quarter earnings Friday with revenue of $841 million topping Wall Street’s estimates. User numbers were also better than expected, with monetizable daily active users growing 14% compared to a year earlier to 139 million. The revenue beat helped to drive operating income above consensus and the high end of guidance to $76 million.

Outlook for the second half of the year offered less to tweet home about, though, with revenue growth expected to decelerate in the third quarter due to tougher comparisons and a change in ad format availability. And while revenue guidance could be conservative like last quarter, significant investments in security and technology, as well as increased headcount, are expected to weigh on operating income as the year progresses.

Considering that, Twitter now appears fairly valued, already up 33% this year and nearing 8 times price to forward sales. Two-year highs of around 11 times achieved last June were justified by revenue growth of 24% in last year’s second quarter relative to just 18% in the same quarter this year.

With revenue growth expected to moderate and margins facing further compression, Twitter’s investors are more likely to scrutinize user numbers for the remainder of the year. But while the company credited product improvements for increasing users in the quarter, some major changes of late could backfire.

Twitter isn’t only filtering out unwanted users—it is also filtering its site design, launching a desktop remodel earlier this month that is perhaps too clean. Uncluttered, it is faster and, according to angered users, quite barren. Most of users’ complaints—where else—on Twitter, cite oversimplification. One user said the larger text size made him feel like an “elderly man unable to see.” Another wondered if the designers were “afraid if they don’t make the buttons big enough people will forget how to use them.”

Even before the redesign, users weren’t over the moon about the platform. A recent social-media survey by RBC found Twitter tested as the second-least-popular service among the five major social-media networks—especially among younger people. Satisfaction levels were also the second lowest among the five social platforms.

Potentially driving quality users away with reorganization probably wasn’t the cleansing effect Twitter was going for.

Write to Laura Forman at laura.forman@wsj.com

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