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Twitter Posts First-Ever Profit on Strong Q4 Results as User Growth Stalls

Twitter delivered the first profitable quarter in its nearly 12-year history — although it failed to increase its total monthly user base in the period.

The social network’s financial results handily beat Wall Street expectations. Twitter posted fourth quarter revenue of $732 million, up 2% year-over-year and reversing the trend of declining top-line numbers over the past few quarters.

In Q4, quarterly GAAP (generally accepted accounting principles) net income was $91 million, versus a net loss of $167 million in the year-earlier period. Adjusted earning per share were 19 cents. Wall Street expected revenue of $687 million and EPS of 14 cents.

Twitter shares rocketed up more than 25% in premarket trading — hitting a two-year high. The company had previously said it “will likely” turn a profit in Q4 on a GAAP basis. Twitter achieved the profitable quarter by cutting overall spending 28% year-over-year, with the 9% cutback to its workforce at the end of 2016 contributing to the cost savings.

Twitter averaged 330 million monthly active users in Q4, unchanged from the previous quarter. In part, the company said that was because it stepped up efforts to shut down “spam, malicious automation, and fake accounts.” Analysts had anticipated 2 million MAU net adds in the period. In Q4 2016, Twitter gained an average 1 million monthly users.

“Q4 was a strong finish to the year,” Twitter CEO Jack Dorsey said in announcing the results. “We returned to revenue growth, achieved our goal of GAAP profitability, increased our shipping cadence, and reached five consecutive quarters of double-digit DAU [daily active user] growth. I’m proud of the steady progress we made in 2017, and confident in our path ahead.”

Although Twitter’s MAUs of 330 million for the quarter were flat, it was up 4% year-over-year. In addition, the company said average daily active users grew 12% year-over-year; Twitter doesn’t report number of DAUs.

According to Twitter, a change Apple made to the Safari browser’s third-party app integration resulted in a loss of approximately 2 million MAUs in Q4 (1 million in the U.S. and 1 million internationally). It also cited “seasonality and increased information-quality efforts” as affecting MAU growth. Monthly users in the U.S. averaged 68 million for the period, up 2% year-over-year and a decrease of 1 million quarter-over-quarter, reflecting the impact of the change in Safari.

On the revenue front, Twitter’s ad revenue on owned-and-operated platforms for Q4 was $593 million — up 7% year-over-year and a whopping 30% increase from the previous quarter. Twitter cited user-engagement growth and better sales execution as contributing to the lift. Video remains Twitter’s largest ad format and grew as a percent of total revenue in Q4.

During Q4, Twitter live-streamed around 1,140 events, with 60% of those reaching a global audience. In addition, 28 million live user-generated streams were broadcast in the quarter across Twitter and Periscope. The company announced 22 new live-streaming and VOD partnerships in the period. New partners launching in the quarter included TicToc by Bloomberg, a 24-hour live business-news channel, which has averaged 750,000 daily views since its mid-December launch.

Meanwhile, Twitter has continued to suffer from high-level executive exits. Last month, COO Anthony Noto left the company to join lending startup SoFi as chief executive. Dorsey began the earnings call by praising Noto’s contributions during his three and a half years at Twitter, calling him a “trusted partner” and wishing him well in his new gig. “We are not going to have to do any backfilling on the management team” with Noto’s departure, Dorsey added, saying other execs have stepped in to fulfill his duties.

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