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Holly LaFon
Holly LaFon
Articles (9427)  | Author's Website |

Twitter Flies More Than 20% Higher After Turning First-Ever Profit

An ecstatic market sent stock up in response to the company turning its first-ever profit

February 08, 2018 | About:

An ecstatic market thrust Twitter’s shares up as much as 23% in response to the company turning its first-ever profit Thursday morning.

The social media site favored by journalists, comedians and President Donald Trump has been reporting negative earnings per share since it began posting results publicly in 2012. That changed in the fourth quarter, for which Twitter (NYSE:TWTR) disclosed net income of $91 million and earnings per share of 19 cents, which compared to a net loss of $167 million and a loss per share of 23 cents in the fourth quarter last year. Analysts polled by Thomson Reuters were expecting 14 cents in earnings per share.

The company, co-founded by CEO Jack Dorsey, saw 4% year-over-year growth in the number of monthly active users of the website, at 330 million. The number remained flat from the previous quarter, however. Daily active users were up 12%, the company’s fifth quarter of growth in a row.

Growth in both its advertising and “data licensing and other” segments fueled Twitter’s fourth-quarter earnings results. Overall revenue increased 2% year over year to $732 million. Data licensing and other also grew 10% to $87 million, and advertising revenue increased 1% to $644 million.

“Our GBH Tech Tracker results have been incrementally positive on Twitter as feedback from advertisers and user engagement appear to be trending positive into 2018, and this quarter was a major step in the right direction that shows the monetization and ad growth machine at Twitter is finally heading in the right direction after years of a ‘one step forward, two steps back’ strategy,” Daniel Ives, Head of Technology Research at GBH Insights, said in a note.

The company’s goals for the future center around strengthening its ad business, according to a fourth-quarter shareholder letter. It wants to improve ad performance, measurement and ad platforms, as well as begin to offer video ads and new ways of buying ads. A third goal is to “grow data and enterprise solutions revenue through our new product and channel segmented go-to-market approach.”

In the fourth quarter, Twitter made advertising on the site more appealing by lowering cost per engagement by 42% year over year, while increasing ad engagements by 75%. Tweaks to its ad platform resulted in 26% growth in its ad engagement rates and 18% rise in return for advertisers.

“In Q4, value for advertisers continued to improve and was driven by ongoing engagement growth, improved products, better ad relevance (as measured by clickthrough rates (CTR) and ad engagements), and better pricing,” the company said in the letter.

Twitter may benefit further in its ad space from Facebook (NASDAQ:FB)’s redesign of its Newsfeed, which may force publishers and advertisers to “dip their toe in the water” of Twitter’s ad platform, Ives said.

“In our opinion, Twitter could see potentially a benefit of what we estimate is between 100 bps-200 bps of incremental ad growth in 2018 as some advertisers/publishers start to more heavily bet and experiment on the its ad platform, which is showing increasing signs of an ad growth and MAU turnaround based on our recent checks,” he said.

For the first quarter, Twitter forecast adjusted EBITDA in the range of $185 million to $205 million and EBITDA margin between 33% and 34%. It had adjusted EBITDA of $308 million in the fourth quarter.

Twitter has a price-book ratio of 4.78. Its price-sales ratio of 7.24 is close to a two-year high. At year-end, its balance sheet held $4.4 billion in cash. At third quarter-end, it had $161 billion in long-term debt.

Twitter’s stock price gain dipped around 12% by late afternoon to $29.98 per share.

About the author:

Holly LaFon
I'm a financial journalist with a Master of Science in journalism from Medill at Northwestern University.

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