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Twitter is Suddenly Profitable: We Explain Why

February 09, 2018

  • Twitter announced its first profitable quarter ever
  • Profits are critical for most companies to survive and grow
  • News of Twitter’s profit sent shares up
2 min read

Twitter is a powerful social media force that can shape public opinions and even elections. But  you may not know that it has never earned a profit as a public company.

That is until Thursday, when Twitter announced a financial gain of $91 million for the fourth quarter of 2017, on revenue of $2.5 billion. Before then, its annual losses have piled up, totalling more than $2 billion, according to its most recent annual report for 2016.

The news caused Twitter’s share price to shoot up 25% in early morning trading Thursday, to $33.55*

We explain why Twitter’s good quarter is important.

Explaining revenue vs profit

Good to know: When examining a company’s financial performance, two important indicators to consider are revenue and profit, which are sometimes referred to as sales and net income.

Generally speaking, revenue is the total amount of cash a company brings in during a quarter, or throughout the year, through sales.

A company can also use profits to continue growing, or to do things like increase salaries or pay bonuses.

By contrast, profit is the amount of cash that’s free to spend after the company has used its revenue to pay its expenses, such as salaries and rent, and all other ongoing operational costs.

A company can also use profits to continue growing, or to do things like increase salaries or pay bonuses.

If a company isn’t profitable, it’s usually operating at a loss, which means its losing money each quarter, or each year. Unless there’s a guaranteed stream of revenue coming in, operating at a loss is unsustainable for a business, and it will soon have to reconsider what it’s doing or close its doors.

Twitter has more “favorites”

Twitter went public in 2013, in one of the most sensational IPOs of the year. At the time, its stock price increased 73% in a single day. But since then, its share price has often sunk well below its initial offering price of $26. It has also lost tens of millions of dollars every quarter–until its most recent fourth quarter.

In the final three months of 2017, Twitter said its monthly user base increased 4% to 330 million, and that its daily active users increased 12%, compared to the same quarter a year ago. It also grew its advertising revenue 1% to $644 million. Advertising revenue is the biggest source of revenue for Twitter, according to the company’s report.

A single quarter of profitability, however, doesn’t mean the company has turned a corner for good, but financial experts said it was still positive news.

“Twitter has done a very nice job getting their costs in line with their revenue outlook,” Michael Nathanson, senior research analyst at research firm Moffett Nathanson, told the Wall Street Journal on Thursday.

Can a company be successful (but not profitable)?

Some companies are almost never profitable, as they use all their revenue to fund operations and grow their businesses. Electric car manufacturer Tesla is one example. Amazon, is another. The e-commerce giant has only had a few profitable quarters since going public 20 years go.

But Amazon is also one of the largest tech companies in the world, and one of the biggest companies in the U.S., with a market cap of approximately $670 billion. It also has enormous revenue, and plows that revenue back into the company to continue growing its products and services.

As for Tesla, its soaring stock price despite years of losses signals investor enthusiasm that the company’s products could be the future of the automobile industry.

*Source: Yahoo Finance, February 8, 2018

By Jeremy Quittner
Jeremy Quittner is the senior writer for Stash.

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