Twitter trounces estimates as growth moves overseas

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Twitter Inc reported its second profitable quarter on Wednesday and topped Wall Street estimates for revenue, profit and monthly active users, as advertisers in Asia and other markets outside the United States embraced its video ads.

Shares in the company initially rose 13 percent after the results but turned weaker soon after opening in New York with some analysts pointing to a broader pullback in some US technology stocks that knocked 2 percent off Facebook shares and 8 percent off rival Snap Inc.

Twitter’s daily active users (DAU) grew 10 percent year-over-year while monthly active users (MAU) rose 3 percent to 336 million, just above a forecast of 334 million.

US President Donald Trump has kept the San Francisco-based service in the headlines domestically, but growth has been faster abroad as Twitter has tried to grow its user base and ad business.

International sales accounted for 48 percent of revenue, growing 53 percent year-over-year, compared with 2 percent in the United States. Total revenue rose 21 percent.

“We are not that far away from international becoming more than half of revenue at Twitter,” Chief Financial Officer Ned Segal told analysts on a conference call, highlighting strength in Japan, UK, Brazil and the Middle East.

Twitter has been experimenting with new ad formats, including video, which drove sales in Japan and China.

The company said it added 5 million people outside the United States and 1 million people in its home market, compared with the fourth quarter.

“DAU continued its double-digit growth against tougher numbers from a year ago, meaning they are not just benefiting from easy year ago results but rather benefiting based on their initiatives,” said Chaim Siegel, analyst at Elazar Advisors.

However, eMarketer analyst Debra Aho Williamson flagged concerns about significantly slower ad growth and a stagnating user base in the United States.

Known for short messages, Twitter has paid to develop live shows and broadcast live events, using videos to get people to spend more time on the service and to sell video ads to marketers. Videos accounted for more than half of ad revenue in the quarter.

The social media sector is under intense pressure, however, from lawmakers around the globe for inflaming political debates, allowing abusive language and failing to safeguard personal data.

While there have been few signs that users have abandoned social media, companies like Twitter and Facebook face the prospect of costs rising as lawmakers seek new regulations to avoid abuse and misuse of their sites.

“What’s more important is that they didn’t see any change in account adds/activity due to FB’s debacle with private data,” Summit Insights Group analyst Jonathan kees said.

Twitter said it expected to increase its workforce by 10 percent to 15 percent in 2018 as it hires to improve the “health” of discussions on Twitter and meet other priorities.

“They intend to spend more on privacy and security, so some of the headcount growth was expected,” Wedbush Securities analyst Michael Pachter said.

Shares of Google parent Alphabet Inc lost almost 5 percent on Tuesday as a surge in costs during the first quarter drove what analysts said was its biggest ever contraction in gross margins.

Revenue growth for the remainder of 2018 will be similar to the slower rates of 2016, Twitter said, adding that second-half growth would face difficult comparisons to a strong performance in late 2017.

The fourth quarter of last year was Twitter’s first profitable one, and the company reiterated that it expects to be profitable for the full year in 2018.

First-quarter expenses, excluding stock-based compensation, rose 10 percent. Twitter, however, has been cutting stock-based compensation, and total expenses were flat as a result. The company said it saw a $21 million tax benefit from December’s US tax overhaul.

Total revenue rose to $664.9 million, beating analysts’ expectations of $607.6 million, according to Thomson Reuters I/B/E/S. Ad revenue was $575 million, beating expectations of $523.1 million.

Twitter swung to a net profit of $61 million, or 8 cents per share, in the first quarter, from a loss of $61.6 million, or 9 cents per share, a year earlier.

Excluding items, the company earned 16 cents per share, topping the average analyst estimate of 12 cents per share.

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