Twitter beats sales estimates but warns of slowing user growth
Twitter Inc. reported fourth-quarter revenue Tuesday that topped analysts’ estimates, capitalizing on a robust holiday season for digital advertising, though the social network added fewer new users than projected and warned that audience gains in 2021 will slow compared with last year’s pandemic-fueled surge.
Revenue rose 28% to $1.29 billion, surpassing the average analyst prediction of $1.19 billion, according to data compiled by Bloomberg. Twitter’s shareholder letter cited “strong brand advertiser demand in the U.S.” as a driver of ad sales in the fourth quarter. Net income rose to $222 million, or 27 cents a share.
Twitter reported 192 million daily active users, 26% growth from a year earlier but shy of estimates for 193.4 million. Overall for 2020 the company’s daily user base grew by 40 million. The company credited the gains to “product improvements” and a series of major events that drew in audiences, including the U.S. presidential election and discussion around the COVID-19 pandemic.
It was a strong quarter for digital advertising companies in general, which were buoyed by the push toward online shopping during the pandemic. Facebook Inc., Alphabet Inc.’s Google, Snap Inc. and Pinterest Inc. all reported better-than-expected revenue for the period. Still, Twitter’s lackluster user additions could reignite concerns about long-term growth, especially after the company permanently banned then-President Trump in January.
Twitter has long argued that Trump’s presence on the platform didn’t meaningfully affect user growth, but it did raise Twitter’s public profile during his four years in office.
“We are a platform that is obviously much larger than any one topic or any one account,” Chief Executive Jack Dorsey told analysts Tuesday. He added that the majority of Twitter’s users are outside the U.S., and that the service has more than 50 accounts with over 25 million followers. He also said daily active users will probably grow more than 20% in the first quarter, which is when Trump was banned.
Last quarter Twitter added 1 million new users in the U.S. and now has 37 million average daily users in its most profitable market.
Shares rose about 2% in extended trading after closing at $59.87. The stock has gained about 62% in the past year, reaching its highest level since 2014.
User growth, which has come in above 20% for the last five quarters, will slip to a percentage in the “low double digits” starting in the second quarter, Twitter said in a statement. “Looking beyond Q1, the significant pandemic-related surge we saw last year continues to create challenging comps,” the company said in its letter to shareholders.
Twitter projected first-quarter revenue of $940 million to $1.04 billion. Analysts estimated it would be $983.4 million.
The San Francisco company said it expects a “modest” effect on its advertising business from Apple Inc.’s upcoming changes to the iOS 14 mobile operating system, which could make it harder for companies to track and then re-target users with ads. Rival Facebook has said the changes could pose a serious threat to its business, but Twitter depends less on targeted ads, and relies more on brand advertising, which typically includes more general messaging and targeting.
The company highlighted revenue from ads that promote mobile app installs, called MAP ads, which Twitter worked to improve in the last year. MAP ads generated more than $300 million in revenue in 2020, which was unchanged from a year earlier, though Twitter said sales from MAP ads improved more than 50% in the fourth quarter.
Twitter has been exploring subscription services to add revenue streams other than advertising. Multiple internal teams are researching subscription products, though executives have said that such initiatives are still a long way off.
The company didn’t mention subscriptions in its shareholder letter Tuesday, and Chief Financial Officer Ned Segal said there was “nothing new to report” when asked about subscriptions on the call.