Twitter, Inc. Finally Returns to Strong User Growth

Expectations were low ahead of Twitter's (NYSE: TWTR)first-quarter earningsreport, with shares trading near a 52-week low. Analysts forecasted declining revenue and earnings per share, as well as slow user growth.But the company managed to deliver some solid results, particularly in user growth.

Twitter earnings: The raw numbers

While Twitter's revenue was down year over year for the first time in the company's publicly traded history, revenue came in much higher than average analyst expectations of about $513 million -- the actual figure was $548 million. Non-GAAP EPS of $0.11 was also ahead of a consensus analyst estimate for non-GAAP EPS of $0.01.

Monthly active user growth was particularly strong, at least compared to the company's slow growth over the last two years. Monthly active users hit 328 million, up 6% year over year and 3% sequentially. This monthly active user growth marked a nice acceleration relative to the 4% and 0.06% year-over-year and sequential growth, respectively, Twitter reported in the fourth quarter of 2016.

Quarterly highlights

  • Daily active users, which management doesn't disclose in absolute numbers, saw year-over-year growth accelerate for the fourth quarter in a row. Daily active users were up 14% year over year.
  • Audience growth was driven by a combination of organic growth, seasonality, product improvements, and marketing.
  • User growth continued to be broad-based, with daily active user growth accelerating in seven of the company's top 10 global markets.
  • Cost per engagement with advertisers decreased 63% during the quarter, as management says the company is receiving positive feedback from advertisers "regarding significant ROI improvements."
  • Total ad engagements increased 139% year over year.
  • Management made progress on simplifying Twitter's revenue product portfolio by "reallocating our resources to the highest revenue-generating priorities, and to areas where we have the greatest odds of scaled success."

Image source: Getty Images.

Looking ahead

Despite reporting its first quarter of declining revenue, Twitter remains optimistic about its future.

Though the company is facing revenue headwinds, CEO Jack Dorsey said that "executing on our plan and growing our audience should result in positive revenue growth over the long term." But management also said it expects revenue growth to "meaningfully lag audience growth in 2017," suggesting investors should get their hopes up for revenue growth in Q2.

Going forward, Twitter says it is "making progress toward GAAP profitability in 2017."

While slumping revenue might be discouraging, investors may have better days ahead to look forward to if management is right about revenue growth following user growth.

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Daniel Sparks has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool has a disclosure policy.