What's going on?
Twitter, the social network of choice for popes and presidents, had its first-ever period of profitability last quarter, it said on Thursday. Impressed investors buying the stock initially pushed its value up over 20%, before it eventually settled up more than 12% on the day. (tweet this)
What does this mean?
After years of flagging growth, and a couple of flirtations with suitors that turned out to be damp squibs, 2017 was the beginning of a turnaround for Twitter, which helped the stock regain some composure. But investors really wanted to see increased revenue (i.e. advertising income) before getting too optimistic. On Thursday Twitter delivered, posting its first revenue growth in a year – and even a small profit. The credit, apparently, goes to an overhaul of its platform, including the introduction of a powerfully personalized news feed. That’s improved user engagement and, consequently, made Twitter more appealing to advertisers.
Why should I care?
For markets: Profitability may prove fleeting.
Twitter’s CEO cautioned that costs may rise in 2018, as the company invests in tackling the protean scourge of spam, fake accounts and abuse for which it has become notorious. But investors will likely put up with meager profits if Twitter can reinvigorate its user growth (which stalled this quarter) – and, importantly, further increase the engagement of its current users.
The bigger picture: The future will be live-streamed – and expensive.
The CEO pointed to new online video features and trials of “programmatic” (i.e. computer-personalized) advertising as helping Twitter achieve revenue growth of 2% versus the same period a year ago – although income was down by 8% in the US. Live-streaming of sports and news content is seen by many of the big online platforms as being key to attracting more advertising revenue (users interact more with video-based ads). But with broadcasting deals worth tens of millions of dollars, there’s a risk that Twitter may continue to find itself outbid by deep-pocketed rivals.