Twitter just turned a profit for the first time ever

It was nearly 12 years coming, but Twitter has finally turned a profit for the first time in its history. More used to headlines about its most loud-mouthed user, a worrying problem with neo-nazis, stunted growth and a failure to find a buyer due to the latter three points’ coverage, this represents a rare bit of good news for the social network, which posted profits of $91.1 million (~£65 million) in Q4 2017. This, in turn, saw Twitter stock rise close to 16%.

The interesting thing about this is that the turn of the fortunes has very little to do with growth, and a lot more to do with cost-cutting. Revenue was up to $731 million, which is just 2% year-on-year, and the userbase was up just 4% in the same period – not enough to turn a profit for the first time (especially if any of those accounts are robotic in nature.)

So how did Twitter manage to cut costs so dramatically? The income statement reveals some useful clues. Year-on-year spend on stock-based compensation was $102 million in Q4, down from $134 million; R&D dropped from $120.3 million to $78.3 million; and sales/marketing dropped from $223 million to $163.5 million. Add these up, and it comes to savings of some $133.5 million – or around 28%.

Recode

adds to this that Twitter sources claim it’s not just down to cuts, and that business growth is stronger than it first appears – because the 2% revenue growth would have been closer to 8% if you consider that some of the 2016 money came from the company’s now-closed marketing platform Tellapart, which shut up shop early this year.

But add it all together, and it’s still pretty clear where the bulk of the savings are coming from. Twitter is being a bit smarter with its spending, and the strategy is beginning to bear fruit.

“Q4 was a strong finish to the year,” Twitter CEO Jack Dorsey said in a statement. “We returned to revenue growth, achieved our goal of GAAP [generally accepted accounting principles] profitability, increased our shipping cadence, and reached five consecutive quarters of double-digit DAU [daily active user] growth. I’m proud of the steady progress we made in 2017, and confident in our path ahead.”