Twitter’s Q4 Profitability Bodes Well For 2018
Twitter (NYSE:TWTR) reported solid growth in revenues in Q4, and for the first time in its history the company achieved GAAP profitability as net income rose to $91 million. As a result of this earnings surprise, the company’s stock price rose by over 10% on Thursday, February 8. Going forward, the company expects another quarter of strong revenue and profit in Q1’18. We have created an interactive dashboard that illustrates Twitter’s Q4 results and our expectations for the company in going forward. You can modify drivers such as revenues from the U.S. and international markets, margins and share count to ascertain the impact on EPS for Q1’18 and FY2018.
Key Takeaways From Q4
Twitter’s total revenue grew by 2% year-over-year (y-o-y) to $732 million, as international advertising revenue grew by 18% y-o-y to $302 million. As a result, total advertising revenues grew by 1% to $644 million, offsetting a decline in ad revenues from the U.S. Twitter’s adjusted EBITDA increased considerably on the back of a decline in R&D expense, marketing costs, stock-based compensation and 7% growth in owned and operated properties. As a result, its net income grew to $91 million in the quarter.
In terms of users, Twitter’s average monthly active users (MAUs) grew 4% y-o-y to 330 million in Q4 2017. However, on a sequential basis, the company’s U.S. MAUs actually declined by 1.5% to 68 million. While the company’s difficulties adding users is a concern, monetization across both the U.S. and international market has helped the company to report growth in profit.
On the bright side, advertising metrics continued to report improvement as total ad engagements increased 75% year-over-year, driven by a shift in mix toward video ad impressions, higher click-through rates, better targeting, and ad relevance. Average Cost Per Engagement decreased 42% year-over-year, reflecting a higher mix of video ad engagements.
Video consumption has been growing tremendously over the past few quarters on Periscope as well as on the Twitter platform with the launch of auto-play videos. This has translated into higher advertising revenue growth and remains Twitter’s largest ad format. Going forward, we expect better user engagement, increasing video content and better click-through rates will drive revenue growth in 2018, while cost control measures will yield improved profitability.
Our $23 price estimate for Twitter is below the current market price
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