Quantcast

Twitter investors look past warning of slower user growth and eye rising ad sales

FILE PHOTO: The Twitter application is seen on a phone screen

(Reuters) – Twitter Inc on Tuesday beat Wall Street targets for quarterly sales and profit and followed its social media peers to forecast a strong start to 2021 as ad spending rebounds from a rock bottom.

The solid beat, aided by ad product improvements, convinced investors to overlook a dull forecast for user growth, which Twitter expect to slow down to low double digits this year as a boost from the pandemic fizzles.

Total revenue came in at a record $1.29 billion, an increase of 28% year over year. Shares of the company were up nearly 3% in extended trading, adding to a 11% gain in stock so far this year.

The social media company said expenses would rise 25% or more in 2021 but projected that total revenue would grow faster than costs.

The social media company has been in the spotlight amid global debates over what is allowed on the site – from its recent refusal to comply with an Indian government directive to block accounts linked to the farmers’ protest to its ban on former U.S. President Donald Trump following the Capitol riot in January.

On an earnings call with analysts, CEO Jack Dorsey downplayed any impact from the much-debated January account closures.

“We are a platform that is obviously much larger than any one topic or any one account. 80% of our audience is outside the United States,” he said.

Investors are looking past Twitter’s miss on user growth because of other positives during the quarter, including higher ad revenue, profitability and revenue guidance that was better than expected, said Hari Srinivasan, senior research analyst at Neuberger Berman.

In the fourth quarter, Twitter said it had 192 million average monetizable daily active users (mDAU) – its term for the number of daily users who can view ads. That’s up 26% from a year earlier. Analysts were expecting 196.5 million, according to IBES data from Refinitiv. Twitter said that user growth rates may decrease to “low double digits” beginning in the second quarter.

Twitter said user growth had been driven by product improvements and more global conversation from events like the COVID-19 pandemic and the U.S. election. Some temporary changes to reduce misinformation around the U.S. election had a small negative impact on global user growth, it said.

Ad revenue was $1.15 billion, up 31% from the same period a year ago and beating analyst estimates.

The company is building tools that help advertisers increase product sales and finely target ads to interested users, which will help Twitter earn more money from advertisers.

Twitter acquired newsletter startup Revue last month. It also recently launched disappearing tweets called “fleets” and said it had in late Q4 released a beta test of “Spaces,” its audio-chat room feature which has similarities with voice-based app Clubhouse.

Dorsey told analysts on a conference call that the company was working on subscriptions but did not expect meaningful revenue until next year.

Net income rose to $222.1 million, or 27 cents per share, from $118.8 million, or 15 cents per share a year earlier. Excluding items, Twitter earned 38 cents per share, beating estimates of 31 cents.

Twitter’s costs and expenses were $1.04 billion for the quarter, an increase of 21% year over year. It said it expected costs and expenses to rise partly due to plans to grow headcount by more than 20% particularly in engineering, product, design and research.

Twitter said it expected total revenue in the current quarter to be between $940 million and $1.04 billion.

It said it expected “modest impact” from the rollout of Apple Inc’s planned privacy changes to the iOS system.

(Reporting by Elizabeth Culliford in New York, Munsif Vengattil in Bengaluru and Sheila Dang in Dallas; Editing by Lisa Shumaker)

More from our Sister Sites