Twitter Inc. posted a surprise gain in revenue, the first growth in four quarters, driven by improvements to its app and added video content that are persuading advertisers to boost spending on the social network. The shares surged.
The company topped analysts’ average sales estimates in the fourth quarter and for the first time posted a real profit, a milestone in Chief Executive Officer Jack Dorsey’s turnaround effort. Monthly active users were little changed from the prior quarter at 330 million, a lower-than-projected total that the company attributed in part to stepped-up efforts to reduce spam, malicious activity and fake accounts.
The report adds to positive momentum in recent months for Twitter, which spent the second half of 2017 explaining how Russian-linked accounts -- including automated bots -- influenced content on its platform around the 2016 U.S. presidential election. Dorsey, who also runs Square Inc., has been working to broaden Twitter from a microblogging site into a destination for users to see "what’s happening now” by striking live-streaming partnerships with news outlets and sports leagues.
The shares soared 15 percent in early trading in New York after closing at $26.91 Wednesday.
Twitter’s focus on video, as well as a new software algorithm that shows users the most relevant postings first, have led people to spend more time on the platform, said Richard Greenfield, an analyst at BTIG.
"I think they’ve come a long way,” Greenfield said. “The product has dramatically improved. They’re doing a better job of showing the right tweets to the right people at the right time."
Twitter has been upgraded by at least six analysts since late October, fueling a stock rally of more than 47 percent in the past year. Shares jumped as much as 9.5 percent in one day last month amid renewed speculation that the company may be an acquisition target.
Revenue in the recent period rose 2 percent from a year earlier to $731.6 million, buoyed by data-licensing sales and video advertising. Analysts on average had predicted $686.4 million, according to data compiled by Bloomberg. Net income was $91.1 million, or 12 cents a share, marking the first time the company reached profitability under generally accepted accounting principles. That compared with a loss of $167.1 million, or 23 cents, a year earlier. Profit excluding some costs was 19 cents a share, exceeding projections for 14 cents.
Analysts on average had estimated monthly users would rise to 333 million. Twitter said daily active users increased 12 percent from a year earlier, marking its fifth consecutive quarter of double-digit increases. The company doesn’t disclose the specific number of daily active users, arguing that showing growth is more important.
"A main part of the turnaround premise is predicated on DAU gains," said James Cakmak, an analyst at Monness Crespi Hardt & Co, who estimates that Twitter has roughly 125 million daily users. By contrast, Facebook has 1.4 billion. "Without added transparency on that front, it provides more questions than answers."