Twitter's turnaround takes hold as advertisers spend more, driving up Q4 revenue

Brief:

Twitter saw its Q4 advertising revenue increase 1% for a total of $644 million while data licensing and other revenue increased 10%, the company reported in a statement released today. Overall, revenue increased 2% for a total of $731.6 million.
Total ad engagements increased 75% from a year earlier while the cost per engagement decreased 42%. In Q4, Twitter optimized its ad serving logic, resulting in a 26% increase in ad engagement rates and and an 18% increase in ROI for advertisers.
Average monthly active users grew 4% for a total of 330 million from a year earlier and flat compared to the previous quarter. Daily active users grew by 12% year-over-year, the platform's fifth consecutive quarter of double-digit year-over-year growth.

Insight:

Twitter's Q4 results reveal the company is finally starting to make some headway on a turnaround strategy that has been in place since co-founder Jack Dorsey returned as CEO in 2015. However, a few warning signals remain, such as stagnant user growth. In posting a surprise profit — the company's first ever — Twitter succeeded at convincing analysts and investors that the turnaround has some legs, with Twitter's stock value soaring following the release of the results. The good news follows Snap's strong results from earlier this week, suggesting there is life in digital platforms beyond Google and Facebook.

The gains in advertising revenue are a positive sign for Twitter, which said the increase was driven by strong engagement growth, improved ROI and better sales execution. Video is Twitter's largest ad format, with live events and in-stream video ads two significant sources of growth, per the company. Twitter signed 22 new live streaming partnerships in Q4 and hosted more than 1,140 live-streamed events.

Another source of the ad revenue growth was the new Promoted Tweet composer that simplifies the process of creating this content. Advertisers with access to this tool created 26% more Promoted Tweets, launched 13% more campaigns and spent 23% more on Twitter. A new agency resource center for mid-sized digital agencies drove an increase in revenue from smaller ad agencies, the company reported. With positive early results of several public betas for a new subscription advertising product, Twitter Promote Mode, the company will work on building this out in Q1.

Twitter's user growth numbers are mixed, making it unclear how successful efforts have been to enhance the user experience with a change to its algorithm that prioritizes the most relevant posts and by expanding the allowable length for tweets to 280 characters. However, Twitter, as it has previously done, did not release a specific number for daily active users, stating simply that this number increased 12%. The number of monthly average users remained flat quarter-over-quarter, which was lower than analysts had expected and which Twitter attributed to a change to Safari's third-party app integration and the company's own efforts to reduce spam, malicious automation and fake accounts, problems that have taken on new urgency for Twitter as it has became clear how Russian-linked accounts influenced content on the platform around the 2016 U.S. presidential election.