On Wednesday morning, Twitter (NYSE:TWTR) put to rest any concerns about its ability to maintain its recent return to growth. The social network's first-quarter revenue growth accelerated, and the company reported its second quarter in a row of GAAP (generally accepted accounting principles) profitability.

The period marked "a strong start to the year," said Twitter CEO Jack Dorsey. Including growth across all major products and geographies, double-digit year-over-year growth in daily active users, and improved ROI (return on investment) for advertisers, the quarter included plenty for investors to be optimistic about.

A woman using her smartphone while holding a coffee

Image source: Getty Images.

The raw numbers

Metric

Q1 2018

Q1 2017

Change

Revenue

$665 million

$548 million

21%

Non-GAAP EPS

$0.16

$0.07

129%

GAAP EPS

$0.08

($0.09)

N/A

Data source: Twitter first-quarter shareholder letter. Table by author.

Twitter surprised investors in its fourth quarter when it returned to revenue growth, reporting a 2% year-over-year increase in its top line. It's easy to see why it was such a surprise since in Twitter's second and third quarters of 2017, revenue fell 5% and 4% year over year, respectively.

But momentum has continued. Revenue growth accelerated significantly in the first quarter, rising 21% year over year. Indeed, when excluding the approximately $23 million of revenue generated in the year-ago period from Twitter's direct-response advertising product TellApart, which was fully deprecated before the first quarter of 2018, revenue during the period was up 27%.

"Revenue growth was driven by continued strong ad engagement growth, improved revenue features, improved ROI, and better sales execution," Twitter said in its first-quarter shareholder letter.

Meanwhile, Twitter's profitability soared, driven by a significant improvement in the company's profit margin. Non-GAAP EPS climbed from $0.07 in the year-ago quarter to $0.16, representing 129% growth. Meanwhile, GAAP EPS swung from a loss of $0.09 in the year-ago quarter to $0.08.

First-quarter highlights

  • Twitter's advertising revenue was up 21% year over year -- a sharp acceleration from 1% growth in Q4.
  • Twitter's owned-and-operated advertising revenue was up 28% year over year.
  • Video now accounts for more than half of Twitter's ad revenue and was the company's fastest-growing ad format during the quarter, seeing "strength across in-stream pre-roll and mid-roll ads, FirstView, Video Website Cards, and Video App Cards," management noted.
  • International ad revenue jumped 52% year over year and accounted for about half of total ad revenue.
  • Data licensing and other revenue increased 20% year over year to $90 million. This compares to 10% growth in Q4.
  • Total ad engagements were up 69% year over year.
  • Daily active users were up 10% year over year, marking Twitter's sixth consecutive quarter of double-digit growth in the key metric.
  • Monthly active users climbed to 336 million -- up 3% year over year and 1.8% sequentially.
  • Twitter's net margin was 9% -- up from a negative net margin of 11% in the year-ago quarter.
  • Its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin climbed from 31% in the first quarter of 2017 to 37% -- ahead of management's guidance for a first-quarter adjusted EBITDA margin between 33% and 34%. 

Looking ahead

Twitter expects its trend of rapidly improving financials to persist into the second quarter, as management guided for second-quarter adjusted EBITDA to be between $245 million and $265 million -- a huge jump from adjusted EBITDA of $178 million in the second quarter of 2017. 

Though Twitter didn't provide a specific guidance range for revenue, it did say it believed its sequential growth rates for total revenue will resemble rates seen in 2016. For context, Twitter's second-, third-, and fourth-quarter revenue increased 1%, 2%, and 16% sequentially in 2016, respectively.

While Twitter's return to growth looks like it will continue unabated in 2018, investors will want to continue to watch trends in key metrics like revenue, earnings per share, and daily active users to ensure this momentum is sustainable.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool has a disclosure policy.