Twitter enters new territory as focus on cost-cutting puts it in the black
Twitter has reported its first profitable quarter as a publicly traded company, cutting into expenses while breaking a streak of declining revenue, though challenges remain as the company plans to ramp up spending this year.
Twitter, which lost money every quarter since going public in November 2013, had set a goal of “driving towards” profitability in 2017. In the final three months of the year, it eked out a profit of $US91.1 million, compared with a loss of $US167.1m a year ago.
The move into the black came largely from a 28 per cent drop in expenses in the quarter, driven by lower stock-based compensation. Revenue rose 2 per cent to $US731.6m, ending a three-quarter string of declines, though revenue in the US was down 8 per cent. Revenue generated from advertising was up 1 per cent.
Investors welcomed the news, sending Twitter’s shares up 18 per cent. Wall Street earlier this week also cheered a surprisingly strong performance from Snap, which managed a revival in sales growth and user growth for the first time as a publicly traded company.
“Twitter has done a very nice job getting their costs in line with their revenue outlook,” said Michael Nathanson, senior research analyst at research firm MoffettNathanson.
On a call with analysts, chief executive Jack Dorsey cautioned that Twitter planned to invest in its product and its sales team in 2018, a move it said would cause expenses to more closely align with revenue and tamp down on growth in margins after years of improvement.
The investments are partly aimed at more aggressively curbing abusive activity — shedding spam and other accounts, while stopping some before they are created — an effort that kept its number of users who use the product monthly at 330 million in the fourth quarter, flat compared with the prior three months. From a year ago, monthly active users were up 4 per cent.
“What really matters for Twitter is how well they are monetising the existing user base,” said Brian Wieser, senior analyst at Pivotal Research Group. “Plus or minus a relatively small number of users is meaningless.”
Twitter said the number of people using its product daily grew 12 per cent from a year ago. On the call, finance chief Ned Segal said percentage growth was up double- digits for a fifth consecutive quarter, but the company again didn’t disclose its number of daily users — a metric given by rivals Facebook and Snap — making it difficult to gauge the true strength of the growth.
Early last year, Twitter’s user growth appeared to turn a corner: In just one quarter, nine million people joined, a level of user growth the company had not had in two years, but three months later that election-fuelled surge fizzled.