Twitter has surprised investors by posting its first-ever quarterly profit, just a year after reporting a massive loss, but still faces challenges such as stagnant user numbers and the use of its platform for abuse.
The social media platform reported fourth-quarter net income of $91.1m (£64.97m), marking a comeback from the $167.1m loss reported the previous year.
Revenue rose 2% year-on-year to $731.6m, the first increase since the fourth quarter of 2016.
The social media platform said the fourth quarter revenue growth was “driven by continued strong engagement growth, improved revenue features, improved ROI (return on investment), and better sales execution”.
In a statement, the company said it “made significant operational and financial progress in 2017, delivering sustained growth in audience and engagement and improved financial performance throughout the year.”
“We identified our most critical priorities and ensured that our resources were directed towards them. Our disciplined execution against these priorities led to steady top-line recovery and net margin improvement as the year progressed, putting us in a considerably stronger position as we head into 2018.”
Shares soared by 26% in pre-market trading in the US on Thursday.
The results beat Wall Street’s cautious expectations but they don’t solve some of the company’s problems – the use of its platform for abuse, fake accounts and Russian bots.
On its Twitter account, the company said: “We are committed to making Twitter safer, and we are clarifying our policies, improving our enforcement and communicating more clearly.”
One of its other main problems is that user numbers are largely stagnant.
Twitter reported 330 million monthly active users for the quarter, a 4% increase from a year earlier but flat compared to the third quarter.
Even the attention brought to the micro-blogging site by US President Donald Trump broadcasting his thoughts was not enough to stem the exodus of US users.
That number was 68 million in the fourth quarter, down from 69 million the previous quarter.
In a letter to shareholders, Twitter said that future revenue priorities include improving core ad offerings through better performance and measurement, including ad platform improvements, self serve measurement studies and third-party accreditation.
It said that value for advertisers had “continued to improve and was driven by ongoing engagement growth, improved products, better ad relevance and better pricing”.
Overall ad engagements increased by 75%.
Analysis
Aaron Goldman, CMO, 4C Insights, said: “Twitter’s strong quarter is a clear reflection of brands steadily increasing their investment to capitalise on multi-screen marketing. Twitter has become the defacto place for the world to react to news, politics, sport, TV, weather and more. As such, it’s a great aperture for brands to deliver timely messages to targeted audiences. We are seeing this momentum carry over into Q1 with major tentpole events like the Golden Globes, GRAMMYs, Super Bowl, Winter Games, and Oscars.”
Nick Fletcher, Vice President, Rakuten Marketing, said: “This is a momentous occasion for Twitter. It’s not too surprising, there’s been plenty of talk of the last quarter being a particularly strong one for the platform with monthly active users on the rise again. The compelling question is whether Twitter’s popularity has been driven by Facebook’s recent moves to restructure the news feed less in favour of advertiser and publisher content. It remains to be seen whether Zuckerberg’s belief that less time on social media will result in a higher quality of engagement, there’s certainly an argument for it, but for now brands are clearly happy with Twitter’s accomplishments in video and live broadcast and see a growing role for the platform in campaigns.”
New innovations driving Twitter growth
Yuval Ben-Itzhak, CEO, Socialbakers said that with new innovations such as the release of 280 characters, threads, and live content features, Twitter’s new strategies are successfully regaining the valuable commitment of marketers. Ultimately, this should help continue to differentiate the platform, drive user engagement and increase the user base.
“With an increase in both total revenue and advertising revenue in Q4, Twitter is definitely on the right path to regain commitment from marketers. Twitter continues to prove they are a worthwhile investment by pushing the boundaries and adding new features to increase their user base. The introduction of 280-character tweet and the launch of ‘threads’ last quarter has generated positive feedback and offered marketers a larger creative canvas when developing their message. In addition, Twitter’s focus on improving its live video feature is expected to drive higher user engagement.
“Slowed user growth remains a concern when it comes to Twitter, however, live video will be a critical investment for Twitter as content formats and ways to engage with audiences continues to evolve. Twitter has Live video from the Periscope acquisition and now would be the right time to ramp up the Live content format given the reach and engagement brands are seeing from it on other platforms. Twitter is clearly trying to make story-telling easier by allowing even more context to its algorithms to make them smarter when it comes to serving ads, with the addition of live formats to its features. This should ultimately help continue to differentiate the platform, drive user engagement and increase the user base.
“At the same time, investment in live videos makes Twitter an even more important platform to consider, providing marketers with new opportunities to define how advertising funds are spent on social media platforms and richer options to share content across multiple ad formats (Live, Pictures, Text) to capitalize on the attention of target audiences.”