Earnings Results: Twitter stock surges after big beat on user growth

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Twitter Inc. cracked $1 billion in quarterly revenue for the first time this holiday season while coming in ahead of Wall Street’s expectations for user growth.

The results sent Twitter shares TWTR, +16.32%  surging 15.4% in Thursday morning trading as the better-than-anticipated revenue and user numbers outweighed a profit shortfall.

Twitter continued to face negative effects from an advertising bug that weighed on revenue by 4 percentage points in the latest quarter, though the company said it focused on rebuilding its ad server and launching a new mobile-application promotion product later this year.

Earlier earnings reports from social-media peers Alphabet Inc. GOOG, +2.03%  , Facebook Inc FB, -0.07%   , and Snap Inc. SNAP, +4.39%   indicated disappointing ad spending in the fourth quarter, perhaps owing to a shorter-holiday shopping window in 2019 compared with a year earlier. But Twitter’s quarterly revenue of $1.01 billion topped expectations for $992 million and marked an increase from $909 million a year prior.

“Twitter’s Q4 results were better than feared, particularly given the advertising revenue trends reported by its peers and the company’s recent hiccups related to privacy bugs,” wrote MKM Partners analyst Rohit Kulkarni, who rates the stock at neutral with a $34 target price.

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Twitter’s user numbers were another positive surprise, as the company added 7 million monetizable daily active users (mDAUs) users on a sequential basis, bringing its total count up to 152 million. The FactSet consensus was calling for 2 million net new additions.

“Engagement was solid with year-over-year mDAU growth accelerating for the fifth consecutive quarter and Twitter is focused on Topics and Interests as a way to improve overall usage and adoption,” wrote JMP Securities analyst Ron Josey, who has a market perform rating on Twitter shares.

The company is trying to do a better job of surfacing relevant tweets for users without requiring them to manually follow tons of accounts to build a useful timeline. Chief Executive Jack Dorsey acknowledged on Twitter’s conference call that the company has tended to “make them do a ton of work at the moment to find and follow all the related accounts” but that Twitter is working on making it easier for users to build lists and follow general topics of interests, such as basketball.

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Twitter’s profit for the quarter fell short, however, as the company continues to spend on platform improvements. The company reported net income of $119 million, or 15 cents a share, down from $255 million, or 33 cents a share, in the year-earlier quarter. Adjusted earnings per share came in at 25 cents, compared with 31 cents a year prior, while the FactSet consensus was calling for 29 cents.

Management expects an increase in capital expenditures during 2020 as it plans to launch a new data center.

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For the first quarter, Twitter expects $825 million to $885 million in revenue, while the FactSet consensus called for $873 million.

Twitter shares have added 11% over the past three months, as the S&P 500 SPX, +0.23%  has ticked up about 8%.