Please ensure Javascript is enabled for purposes of website accessibility

Twitter Delivers on Its Profit Promise

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Metric

Q4 2016

Q4 2017

Change (YOY)

Revenue

$717.2 million

$731.6 million

2%

Total costs and expenses

$860.8 million

$621.5 million

(28%)

Operating income

($143.6 million)

$110.1 million

N/A

Net income

($167.1 million)

$91.1 million

N/A

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$39.41 (1.89%) $0.73

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.