Twitter shares soar after reporting first net profit

Updated / Friday, 9 Feb 2018 07:53

The number of people using the social network fell short of expectations as Twitter shut down fake accounts

Twitter yesterday delivered its first quarterly profit and an unexpected return to revenue growth helped by expansion outside the US, pushing shares in the social network to more than two-year highs.

Overall revenue rose 2% in the fourth quarter from a year earlier, beating analyst estimates that called for a fourth quarter of declines in a row. 

Twitter's previous inability to turn a profit or log consistent revenue growth had confounded investors given its ubiquitous media presence and popularity among celebrities, athletes and politicians such as US President Donald Trump.

Revenue from outside the US rose 17%, making up for an 8% decline in US sales. 

Revenue from Japan rose 34% to $106m, and the company's chief financial officer Ned Segal said Chinese exporters were strong advertisers abroad.

Shares closed 12.1% higher at $30.18 after hitting a high of $35 on Wall Street. Twitter was founded in 2006 and went public in 2013 at $26 a share. 

Twitter, which has doubled the number of characters allowed per tweet and made other changes to attract users, said the number of daily active users rose 12%.

Its monthly active users grew more slowly, up 4% from a year earlier to 330 million. That was flat from the third quarter, which the company blamed in part on seasonal weakness and its purge of fake and spam accounts.

Twitter said revenue was helped by using data to make the targeting of ads more individualised, a process known as machine learning. 

That raised clickthrough rates, or the ratio of users who click on a specific ad to the number that view it.

The company also cited higher video ad sales and redesigned ad formats as helping to grow revenue.

Twitter's overall revenue was $731.6m, beating Wall Street's target of $686.1m, according to Thomson Reuters I/B/E/S.

The company reported $87m in data licensing and other non-advertising revenue, up 10% from a year earlier. Ad revenue rose 1% to $644m.

Twitter reported a net profit of $91.1m, or 12 cents per share, compared to a loss of $167.1m, or 23 cents per share, a year earlier.

Adjusted profit was 19 cents per share, topping analyst expectations of 14 cents per share.

But analysts were split on what lies ahead for the company. 

They said that Twitter needs to attract more new users and is trading at a "lofty premium" given expected earnings.

Twitter CEO Jack Dorsey

Twitter chief executive Jack Dorsey focused for the past year on tweaking the product he co-founded to attract users, including by trying to limit user harassment. 

Twitter has also struck deals with media companies for live news and entertainment shows. 

Facebook has 2.1 billion monthly users, while Snapchat owner Snap, which does not report a monthly figure, has 187 million daily users. 

Dorsey told analysts on a conference call that he was not planning a search to replace Anthony Noto, who is leaving as chief operating officer to become CEO of online lender Social Finance Inc and whose duties have been absorbed by others.

"We're not going to have to do any backfilling," Dorsey said.

Shares in Twitter had already surged 47% over the past 12 months as of Wednesday's close, outpacing a 17% rise in the S&P 500 Index.

That came even as social media companies are grappling with a regulatory backlash in Europe and the US over privacy, possible user addiction, hate speech and alleged abuse of by Russia to sway foreign elections.

Twitter's quarterly profit and rising revenue reignited speculation among some analysts that a larger company could try to buy it. 

Walt Disney had expressed an interest in 2016, though at the time Twitter shares were trading at around $18.