Twitter shares soar after reporting strong user numbers and miss on earnings

Key Points
  • Twitter just showed its biggest quarterly user growth ever.
  • Its fourth-quarter earnings also beat estimates on revenue but fell short on profit.
  • The user growth fanned a rally in Twitter shares.
Twitter CFO Ned Segal on the company's revenue beat and profit miss
Twitter CFO Ned Segal on the company's revenue beat and profit miss

Twitter just showed its biggest quarterly user growth ever, fanning a rally in its stock price. The stock soared 15% Thursday, bringing its market cap to $29.8 billion.

The social media company on Thursday reported fourth-quarter earnings that beat revenue and active user expectations but fell short on profit.

Here are the key numbers Twitter reported:

  • Earnings per share: 25 cents per share vs. 29 cents expected, according to Refinitiv consensus estimate
  • Revenue: $1.01 billion vs. $996.7 million expected, according to Refinitv
  • Monetizable Daily Active Users (mDAUs): 152 million vs. 147.5 million total expected, according to FactSet and StreetAccount

Twitter said it experienced the fastest quarterly growth (up 21%) of mDAUs and the metric reached its highest level in Q4. This is only the third time Twitter has reported mDAUs alone, rather the industry standard monthly active users (MAUs) it previously reported. Twitter says mDAUs are not comparable to similar metrics from other companies, which it says are more expansive. The company has said its new figure measures "users who log in and access Twitter on any given day through or our Twitter applications that are able to show ads."

Twitter provided Q1 revenue guidance on the lighter end of expectations, between $825 million and $885 million compared with the Thomson Reuters consensus estimate of $873 million.

Twitter said it expects stock-based compensation expenses for fiscal year 2020 to fall between $425 million and $475 million and capital expenditures to range from $775 million to $825 million. The company plans to build a new data center and grow headcount by 20% during the year, which would be about 960 employees on top of the 4,800 it employed by the end of 2019.

In an interview with Andrew Ross Sorkin on "Squawk Box" Thursday, Twitter CFO Ned Segal said the growth in expenses the company expects this year is due to the mDAU growth it has seen in recent quarters.

"When you add 26 million people to the service, when more than half of it is tied directly to product improvements, you build a confidence to continue to execute against your strategy and the execution we've been able to deliver over the last few years," Segal said.

On a call with analysts, CEO Jack Dorsey said Twitter is hoping to hire globally.

"Our concentration in San Francisco is not serving us any longer and we will strive to be a far more distributed workforce which we will use to improve our execution," Dorsey said.

Dorsey, who is trying to reduce his own reliance on San Francisco, addressed his previously announced plans to move to Africa for up to six months while running the business. Dorsey said he traveled throughout the last year and the management team continued to keep pace with the work.

"I don't fear any slowness as we work to distribute our workforce now, and I do think we have to build a company that's not entirely dependent on San Francisco," Dorsey said. "As we look forward we're reaching a talent pool that expects a lot more remote work, … we should be building our company around that. I haven't made any plans just yet for this year, but I do expect that I will travel."

Last quarter, Twitter reported "a number of headwinds" that contributed to its revenue shortfall, sending the stock down more than 20%. Twitter found several issues with its Mobile Application Promotion (MAP) product that it said hurt its ability to target ads and share measurement data with partners.

Executives warned shareholders that the headwinds would continue to be reflected for the entire fourth quarter and will "continue to weigh on the overall performance of our advertising business in the near term." Segal said the effects could even "bleed over" into 2020.

"We've got more work to do on the revenue product side as well," Segal said on during his "Squawk Box" interview. "That work will continue into 2020."

Twitter said it hopes to finish its ad server rebuild in the first half of 2020 and has "made progress" on its next-generation version of MAP, which is also expected to release this year. In a letter to shareholders, Twitter said it has "shipped remediations designed to help address the third-party measurement issues we encountered in Q3."

Segal told analysts on a call following the earnings report that "advertiser sentiment remains strong." He noted that all but one eligible advertisers (excluding political candidates) that advertised at the Super Bowl also advertised on Twitter.

Twitter said the issues around its ad targeting and measurement resulted in a dip of at least 4 points in year-over-year growth in total global revenue in Q4, which it said was in line with its previous outlook. Twitter said total ad engagements grew 29% in the quarter driven by improved clickthrough rates and increased impressions due to audience growth. Cost per engagement fell 13% due in part to a shift to video ad formats, which Twitter said have lower CPEs.

Twitter has remained focus on initiatives that make the platform safe and accessible for users. On Tuesday, it released a new policy to tackle deepfakes and other forms of synthetic or manipulated media. Twitter said in its announcement that it prioritizes limiting potential serious harm that could stem from user-posted content.

The policy came as Twitter and other social media companies are seeking to firm up their platforms and policies ahead of the 2020 U.S. presidential election. The company is now allowing users an option to report content specifically for including misleading information about how to participate in an election.

In its letter to shareholders, Twitter said its election integrity-related efforts helped reduce bystander reports on tweets that violate its service by 27%.

Twitter also made the bold decision to eliminate political ads altogether, a more sweeping approach than other digital ad providers. Dorsey said in October that it would be "not credible" for Twitter to tell users it's committed to halting the spread of misinformation while allowing advertisers to pay the company to target users with political ads.

—CNBC's Sara Salinas contributed to this report.

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Twitter monetizable active daily users increase by 21%
Twitter monetizable active daily users increase by 21%