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Twitter Delivers on Its Profit Promise

By Evan Niu, CFA - Updated Feb 9, 2018 at 2:57PM

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Investors can thank cost-cutting for delivering black ink.

When Twitter (TWTR 1.89%) reported third-quarter earnings results last October, there was one key reason shares jumped: The company predicted it would be profitable in the fourth quarter. And we're not just talking about on a non-GAAP basis after excluding a bunch of expenses or one-time adjustments. Twitter said it "will likely be GAAP profitable."

That was music to investors' ears, who have endured years of GAAP losses as Twitter spent extravagantly on operating expenses in the pursuit of user growth that never seemed to materialize. Well, Twitter just delivered on its profit promise.

Woman walking by the Twitter logo

Image copyright Atsushi Nakamichi for Twitter, Inc.

The headline metrics

The microblogging service reported fourth-quarter earnings results this morning, and the bottom line has indeed finally switched to black ink. Revenue in the fourth quarter was $732 million, which translated into GAAP net income of $91.1 million, or $0.12 per share. On a non-GAAP basis, net income was $141 million, or $0.19 per share.

In terms of monthly active users (MAUs), they remained flat sequentially at 330 million worldwide, albeit with a negligible shift in geographical composition: U.S. MAUs declined by 1 million while international MAUs grew by 1 million. Twitter's DAUs grew 12% year over year as engagement continues to trend higher. Twitter still won't disclose DAUs on an absolute basis, instead preferring to highlight the directional trend.

Facebook similarly reported a sequential drop in daily active users (DAUs) last quarter, which the dominant social network attributed to North America being a mature and saturated market. The difference is that it was Facebook's first such DAU decline, while Twitter U.S. MAUs have long fluctuated within a narrow range between 65 million and 69 million for years.

Twitter's shift to a 280-character limit has been a huge success in driving engagement. On the conference call, CEO Jack Dorsey noted that the average tweet length hasn't really changed meaningfully, but people are tweeting more frequently. "People do have the room -- we're seeing less abandonment of tweets. But we're also seeing a lot more engagement," Dorsey said.

The feature presentation

The real star of the show was cost-cutting, which was how Twitter managed to post a profit. Here are some of the more pertinent line items on the income statement, but focus on the year-over-year change.


Q4 2016

Q4 2017

Change (YOY)


$717.2 million

$731.6 million


Total costs and expenses

$860.8 million

$621.5 million


Operating income

($143.6 million)

$110.1 million


Net income

($167.1 million)

$91.1 million


Data source: SEC filings. YOY = year over year.

While Twitter delivering its first quarterly GAAP profit is certainly good news for investors, with shares jumping as much as 30% so far today, they should still be wary of profits delivered entirely through cost-cutting. The top line was basically flat, up just 2%, which underscores the ongoing challenges that Twitter has always faced with monetization.

Still, getting to profitability at least shows that Twitter can operate sustainably and survive as an independent company if it maintains it cost discipline, even if the business isn't growing and the stock may not be a long-term outperformer.

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