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Twitter Reports First Quarterly Profit, Despite User Stagnation Twitter Has Good News for Once: Quarterly Profit
(about 3 hours later)
Twitter reported its first profit as a public company on Thursday, a major step as it grapples with persistent criticism over fake accounts on its social network and questions over its prospects for long-term growth. SAN FRANCISCO — Twitter often feels like the digital equivalent of a swamp.
The surprise announcement, which sent the company’s shares sharply higher on Wall Street, comes with social media companies facing political inquiries on both sides of the Atlantic for their role in spreading fake news during elections and referendums. Twitter’s earnings, which beat analysts’ expectations, came just days after another struggling social media company, Snap, also posted positive results with revenue and user growth rising. The Russians used the platform to disrupt the 2016 election. Famous people buy fake followers to make themselves seem more famous. Prominent members of the chattering class have been signing off for good. Sometimes it seems as if no one loves the service except for the president of the United States.
The fourth quarter “was a strong finish to the year,” Jack Dorsey, the Twitter chief executive, said in a news release. “I’m proud of the steady progress we made in 2017, and confident in our path ahead.” As a business, however, Twitter might finally be starting to work.
Twitter reported a profit of $91 million in the last three months of 2017, compared with a loss of $167 million in the corresponding period of 2016. The company had posted a loss in every quarter since it went public in 2013. On Thursday, it reported a profit in the fourth quarter, the first black ink since going public in 2013. The news pushed its shares up more than 20 percent in early trading to their highest level in more than two years.
Overall revenue rose 2 percent to $732 million in the quarter. Revenue from advertising, which makes up the bulk of its revenue, rose 1 percent in the quarter. “We did what we said we were going to do,” an exultant Jack Dorsey, Twitter’s chief executive, said on Twitter. “Our focus and self-discipline continues to improve.”
The company said it had 330 million average monthly users in the fourth quarter, up 4 percent from the prior-year period, but flat from the third quarter. It’s a measure of the undisciplined — O.K., brutal — nature of Twitter that most of the replies to Mr. Dorsey’s tweet were not congratulations but insults and criticism. Others were incomprehensible.
Twitter has struggled with a variety of challenges in recent months. What counts, however, is that those cranks and critics are there in the first place. The number of people who use the service monthly rose 4 percent to 330 million, which — while not a big increase — is something. Those who use the social media service every day grew 12 percent from the fourth quarter of 2016, the fifth consecutive quarter of double-digit gains.
Most recently, an investigation by The New York Times detailed the business practices of a company called Devumi, which helped entertainers, athletes and others build up their follower count using fake accounts. Twitter had previously said it would take action against such practices. More than a million such followers have disappeared since the Times article was published. “The user growth is kind of astounding,” said Rich Greenfield, a media and tech analyst at the research firm BTIG, who has been recommending the stock for a year. “They were barely growing two years ago.”
Federal and state authorities are now scrutinizing companies that sold millions of fake followers on Twitter and other social media platforms. Here is the dynamic that Mr. Greenfield believes is driving Twitter: “If you show the right tweets to the right person at the right time, it creates user happiness. That means more time spent on the site, which means more opportunities for advertising. That’s why advertisers love it when more people get engaged.”
The company has also faced criticism for failing to adequately police online bullying, abuse and harassment of its users, and questions over its role in both the 2016 United States presidential election, and Britain’s 2016 referendum in which the country voted to leave the European Union. This has been a good week for social media companies that are not Facebook. On Tuesday, Snap reported much better revenue than expected, and a slightly narrower loss. Its shares also soared on the news. In contrast, Facebook said last week that it had made changes that reduced the hours its two billion users were spending on its pages.
In October, the company said that it had overstated its monthly-user figures since 2014 after mistakenly including data from third-party applications in its counting. Over all, Twitter reported a profit of $91 million in the last three months of 2017, compared with a loss of $167 million a year earlier. Other numbers were not as impressive. Revenue rose 2 percent to $732 million in the quarter. Revenue from advertising, which makes up the bulk of its revenue, increased 1 percent. In general, Twitter exceeded low expectations.
And last month, Anthony Noto, Twitter’s chief operating officer and one of Mr. Dorsey’s most trusted deputies, left the company to become chief executive of the embattled online lender Social Finance. “A solid result across the board and builds upon the momentum” from the third quarter, analysts at UBS wrote in a research note.
Jim Cridlin, the global head of innovation at Mindshare, a unit of the advertising giant WPP, said that, although Twitter’s momentum had continued into the fourth quarter, the company still faced “significant headwinds.” One quarter is not much of a streak, and Twitter has often been unable to keep it up. Jim Cridlin, the global head of innovation at Mindshare, a unit of the advertising giant WPP, said that while Twitter’s momentum continued into the fourth quarter, the company still faced “significant headwinds.”
“The slower user growth doesn’t necessarily surprise me,” Mr. Cridlin said. “However, this slow user growth, less-than-compelling ad products, brand safety concerns, and a lack of the rich audience data that other platforms have may continue to hinder Twitter’s ability to attract advertisers.” Leadership is one issue. Mr. Dorsey splits his time between Twitter and his other company, the digital payments firm Square. Last month, Anthony Noto, Twitter’s chief operating officer and one of Mr. Dorsey’s most trusted deputies, left the company to become chief executive of the embattled online lender Social Finance.
Twitter also faces criticism as federal and state authorities scrutinize companies that sold millions of fake followers on social media platforms. More than one million followers of entertainers, athletes and others have disappeared after an article by The New York Times detailed the business practices of a company called Devumi. Twitter previously said it would take action against Devumi’s practices.
For the current quarter, UBS calculated that Twitter would generate $583 million of revenue, $11 million more than analysts were predicting. That might keep the party going.
What really is helping Twitter is that there are only three American social media companies that count. Facebook is by far the largest, but is under pressure from all quarters precisely because of its size and influence. It is trying to moderate the latter without hurting the former, which is going to be tricky. Snap is a singular effort forging its own direction as a communications platform.
That leaves Twitter, troubled as it might be.
“Advertisers have a huge desire to be on mobile devices more, but there are not a lot of ways to reach people on applications worthy of your home screen,” said Mr. Greenfield. “Twitter is on your home screen.”