Oct 26, 2017 ยท 4 minutes

Assessing Twitter's financial health has always been a good-news, bad-news affair.

Every encouraging development also brings a qualifying “but” that takes some of the wind out of any positive momentum.

Today's earnings report was no different. Twitter's revenue of $590 million exceeded Wall Street's estimate. But: Revenue declined 4%, falling for the third straight quarter. Ad revenue fell even further, by 8%, with ad revenue in the U.S. falling 18%.

Twitter indicated that the company may (finally!) be GAAP profitable in the fourth quarter. But: Its CFO also warned analysts that the emphasis on cost-cutting will end soon, so it will need revenue to grow again to reach and maintain profitability.

So hungry for good news were investors that this report pushed Twitter up 19% to $20 a share. But: It's still lower that the level Twitter traded at in July. For nearly two years, Twitter has traded between $14 and $20 a share, so this good news simply puts the stock back up at the higher end of that range.

The mixed signals on user engagement are especially troublesome. Daily active users were up 14%. But: Twitter still won't say how many DAUs it has. Monthly active users grew 4% to 330 million, which suggests that some users are growing more engaged. But: How many of these daily users are people? One study estimated that bots make up between 9% and 15% of active Twitter accounts. The headline number on Twitter's shareholder letter may simply indicate that bots continue to take over.

Earlier this month, Politico reported that “federal investigators now believe Twitter was one of Russia’s most potent weapons in its efforts to promote Donald Trump over Hillary Clinton.” On this front, Twitter had some somewhat encouraging news. It's banning advertising from two Russia-backed media organizations and donating the $1.9 million in ad revenue it made from them to research on digital misinformation.

But, and this gets at the crux of Twitter's business-model problem, as meaningful as such steps are, they aren't nearly enough to cleanse Twitter of the toxins that have made it such an unpleasant experience for a growing number of its users. Broken Twitter has become a consistent theme of Twitter news feeds. Power users write eloquently about how things went wrong on Twitter, when they are not abandoning the site.

One user with more than a million followers, Joe Mande, left the site this month after comparing Twitter to a disturbing trend of dipping cigarettes in embalming fluid. “People who smoked embalming fluid were guaranteed to have a horrible, nightmarish experience every single time... and they couldn't stop doing it," Mande wrote in his farewell tweet. "Twitter is the internet's version of smoking embalming fluid."

Banning ads from RT and Sputnik and increasing disclosure on political ads are necessary steps forward even if they're a year too late to help. They add up to half measures from a half-time CEO, anodyne offerings that are welcome on the face of it but do too little to right a bigger wrong: the deterioration of the Twitter news feed by people and bots outmaneuvering Twitter's best intentions. Twitter's whack-a-mole terms of service enforcement somehow always lets a vindictive, verbally abusive and unstable President run amok. Twitter is still awash in embalming fluid.

The financial bind that Twitter finds itself in is worsened by the fact that, since its IPO, the company hasn't made a penny while selectively enforcing its ToS. As an analyst told Bloomberg today, “No one is going to pay up for the stock until they see some mechanism for them to grow. Based upon the way that the president and other trolls use it, there’s a connotation that if you use Twitter, that you’re going to be subjected to open hostility from users.”

In other words, ban trolls like Trump and face a backlash while losing a major source of attention. But don't ban enough of them and suffer a slow attenuation of users who want to spend time on Twitter. The most worrisome metric in Twitter's financial report is the 18% decline in U.S. ad revenue. This in spite of Twitter's sustained growth in daily users. If only those bots would click on more ads!

Twitter's gap between what it likes to call newsworthiness and an investor mindset that might, with some justice, be called make-some-money-already has long been apparent. We all get that Twitter is no Facebook. But now that “newsworthiness” is a cup of poison poured daily into the ear of the American public, that gap is widening into a void over which Twitter's fate precariously hangs. Facebook's killer app is no longer its news feed, it's pure scale. No matter how many democracies Facebook helps to undermine in coming years, it's simply too big to force into meaningful change.

Twitter began as a weird idea that worked because it tapped into something overlooked but essential about community, something we never quite understood until we saw how well Twitter worked. Somewhere along the line it became about the opposite – the unravelling of community, not just the one made up of longtime Twitter users, but the community at large. The one that is increasingly held hostage to reading about the most unsavory, most toxic tweets in the daily news.

Something is going to give, eventually. But for now Twitter gets a pass from the group that the company is listening to most carefully – its shareholders. Twitter jumped over a bar that investors have been lowering inch by inch for the past several quarters. The resulting pop in its stock price has bought its management some more time to fix things. But it doesn't solve the company's deeper problems.