Twitter posts its first quarterly profit since going public in 2013; revenue up 2% to $731.6 million
BusinessToday.in February 9, 2018
Twitter, of late, has been making headlines in India due to hacked accounts of several celebrities but yesterday the social media company had cause to pop the bubbly. Overall revenue not only rose 2% to $731.6 million in the fiscal quarter ending December 2017 from a year earlier, but this is also the first time it has posted a quarterly profit since it went public in 2013. Twitter reported a net profit of $91.1 million, or 12 cents per share, compared to a loss of $167.1 million, or 23 cents per share, a year earlier.
Adjusted EBITDA stood at $308 million "or 42% of total revenue, reaching our long-term target range of 40-45% for the first time", said the company. This turnaround in its fortunes is all the more impressive because it hasn't been easy for new age consumer internet companies to make profits.
In response Chief Executive Jack Dorsey tweeted, "I'm so proud of the @Twitter team. We did what we said we were going to do. Our focus and self-discipline continues to improve. Thank you team! And thanks to all of our shareholders for the patience and support. 2018 is going to be a great year."
Twitter's previous inability to turn a profit or log consistent revenue growth has long confounded investors given its ubiquitous media presence and popularity among celebrities, athletes and politicians, including Prime Minister Narendra Modi.
The unexpected return to revenue growth-analyst estimates had predicted $686.1 million, a fourth straight quarter of declines-was fuelled by expansion outside the United States. Revenue from outside the US rose 17%, making up for an 8% decline in domestic sales. Revenue from Japan rose 34% to $106 million, and Chief Financial Officer Ned Segal said Chinese exporters were strong advertisers abroad.
Apart from higher video ad sales and redesigned ad formats, Twitter said that revenue was further helped by using data to make the targeting of ads more individualized, 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. In the latest quarterly results, advertising revenue is up 1% to $644 million from $638 million a year ago.
"They are showing the right tweets to the right people at the right time, and as you do that, not only do you drive consumers to use Twitter more, but you attract more and more advertisers to want to be on the platform," said analyst Richard Greenfield of BTIG Research. The company also reported $87 million in data licensing and other non-advertising revenue, up 10% from a year earlier.
The platform has seen the number of daily active users go up 12%-thanks to changes like doubling the number of characters allowed per tweet-but 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. In comparison, Facebook Inc has 2.1 billion monthly users, while Snapchat owner Snap Inc, which does not report a monthly figure, has 187 million daily users.
Twitter's quarterly profit and rising revenue has reignited speculation among some analysts that a larger company could try to buy it. The Walt Disney Co expressed interest in 2016, though at the time Twitter shares were trading around $18. Yesterday its share price jumped to more than two-year highs, closing 12.1% higher at $30.18 after hitting a high of $35.00.
In any case, the strong financials come as welcome news at a time when social media companies are grappling with a regulatory backlash in Europe and the United States over privacy concerns, possible user addiction and hate speech. The alleged abuse of Twitter accounts by Russia to sway the 2016 U.S. presidential election-when Donald Trump stormed the White House-did not help matters.
What lies ahead for the company? Opinion stands divided. Twitter Inc said it expects to be "GAAP profitable for the full year 2018," referring to generally accepted accounting principles. In its letter to the shareholders, the company said that for Q1, "we expect adjusted EBITDA to be between $185 million and $205 million". But the outlook is far from rosy.
As pointed out by The Washington Post, it's still not making a significant dent in digital ads, a space dominated by Google and Facebook. According to eMarketer, these two companies together make up an estimated 26% of the worldwide digital ad market while Twitter carries a mere 1.2%. And this status is unlikely to change anytime soon.
With Reuters inputs