In its first-quarter earnings report, Twitter (NYSE:TWTR) proved its strong fourth-quarter performance wasn't a one-time thing. Not only is Twitter's revenue finally growing at strong rates again, but the company has managed to make its business profitable, reporting two quarters in a row of GAAP (generally accepted accounting principles) profitability.
But there's more to Twitter's turnaround than the key metrics covered in its first-quarter earnings release. During Twitter's first-quarter earnings call, executives gave investors further insight into the company's data business, why marketers are choosing Twitter, and more.
Here are three takeaways from that earnings call.
1. Twitter's data business
Given recent scrutiny of Facebook during the Cambridge Analytica scandal, in which a third-party developer was able to mishandle some of its user information, some investors may be concerned about how potential privacy regulation could impact Twitter's fast-growing data licensing business.
But Twitter CEO Jack Dorsey argues that it's unlikely that privacy regulation is a threat to his company:
Our data business is something we continue to feel really good about. We are different from our peers in that Twitter is public. We serve the public conversations, so all of our data is out in the public, out in the open. And our data business just organizes that public data in real-time to make it easier for brands, researchers and organizations to utilize it.
In Twitter's first quarter, its data licensing revenue increased 20% year over year to $90 million.
2. What's driving user growth?
Twitter's daily active users (DAUs) have increased at double-digit year-over-year rates for six quarters in a row; the growth rate was 10% in Q1. One analyst asked Dorsey for some more insight into what exactly is driving this growth, and what's making these users stick around. The key seems to be Twitter's constant improvements in surfacing personalized information and news that users care about.
So being able to show a relevant timeline immediately is definitely the stickiest aspect of Twitter. We've been looking a lot at onboarding and what we can do there, in particular. We are not a social network and we do not benefit from the same social graph that social networks do. People come to us because they're interested in something and they're interested in seeing what's happening within the world, or within a particular topic, or within a particular niche interest. And the faster we can get them to connect with that, the better -- the more value they get out of our service.
Specifically, Dorsey said Twitter has been focusing the service increasingly on topics users are interested in. This includes experiments with its Explore tab, which was recently integrated with Twitter's Moments -- curated stories or events users can follow.
3. Twitter's value proposition to marketers
Twitter's ad business has been performing exceptionally well recently. Its advertising revenue increased 21% year over year to $575 million in Q1. This is a significant acceleration from its 1% year-over-year increase in advertising revenue in the fourth quarter of fiscal year 2017. Part of this strong growth is simply because Twitter's value proposition to advertisers is improving. CFO Ned Segal listed some of the key selling points of Twitter's service to advertisers:
Six quarters in a row of double-digit DAU growth really resonates with advertisers. It's the lower prices that they're getting on Twitter, as we see mix shift to video, and CPEs [costs per engagement] come down. It's better-performing products, as indicated by the click-through rates and ad engagement rates that we talked about. It's improved measurement, as Jack described. And then, the differentiated opportunity we offer to get them in front of their customers on Twitter.
Overall, Twitter's first-quarter earnings call showed a management team taking deliberate steps to constantly improve its business, and to increase its value to both users and advertisers. All three of these topics -- its data licensing efforts, tactics to grow daily users, and improving attractiveness to marketers -- are worth keeping a close eye on as Twitter grows its business.