WASHINGTON, United States (AFP) — Twitter shares took a pounding on Friday after it reported a decline in its user base, extending a stock market bloodbath for what had been a sizzling social media sector.

Shares in Twitter tumbled 20.5 per cent to close at US$34.12 despite a record profit for the short messaging service, as financial markets focused on the new realities for social media firms moving to curb abusive behaviour and boost privacy.

The woes for Twitter came a day after Facebook lost an unprecedented US$120 billion in market value following its earnings report that sent investors into a panic over cooling growth for the social network star.

Twitter said it posted a best-ever profit of US$100 million in the second quarter, following a loss of US$116 million a year earlier. Revenue rose 24 per cent to US$711 million.

But the San Francisco-based firm said its base of monthly active users fell by one million from the past quarter to 335 million in the period amid a purge of fake and abusive accounts and a crackdown on toxic “bots.”

Twitter said it also expected user numbers to drop in the current quarter by a figure in the “mid-single-digit millions.”

The fall in users is a result of “prioritizing the health of the platform, and, to a lesser extent, GDPR,” Twitter said, referring to Europe’s General Data Protection Regulations that limit how internet firms can handle user data.

Analyst Daniel Ives at GBH Insights said markets have abruptly begun to consider “a new risk factor that has been introduced” — how security and privacy affects the bottom line.

“It got the Street off guard in terms of the magnitude of the effect it had on earnings,” Ives said.

Jennifer Grygiel, a Syracuse University professor who specialises in social media, said the market is coming to grips with a tougher picture for the sector as companies seek to curb manipulation and abusive conduct while coping with new regulations on privacy and data protection.

“What you’re seeing is a market correction as the industry adjusts for increased operational expenses as governance and ethical business expectations have been raised globally,” she said.

“Social media is not going anywhere. What has changed is that the public and regulators are no longer buying into (the) rhetoric and myths that social media is too big to moderate.”

Chief executive Jack Dorsey said the past quarter’s results reflect investments “in the long-term health” of Twitter, noting efforts to weed out abusive and inappropriate behaviour.

“We’ll continue to invest heavily in making Twitter a healthier place because that’s the right thing to do,” Dorsey told analysts on a conference call.

Dorsey noted that Twitter is investing in “new tools to address problem behaviours that distort and distract from the public conversation.”