(Reuters) – Twitter Inc (TWTR.N) shares surged 25 percent before the bell on Thursday after the social network reported its first quarterly profit and better-than-expected revenue, helped by ads that better targeted users and sales growth outside the United States.
Investors shrugged off zero growth in Twitter users from a quarter earlier, which the company blamed in part on seasonal weakness and its purge of fake and spam accounts.
Shares traded at $33.70 pre-market and were set to open at their highest level since July 2015.
Twitter’s previous inability to turn a profit had confounded investors given the company’s ubiquitous presence in the media and popularity among celebrities, athletes and politicians such as U.S. President Donald Trump.
In October Twitter had signaled it could turn a quarterly profit as it slashed expenses. Revenue and adjusted fourth-quarter profit both topped analysts’ targets.
“The revenue number was up year-over-year for the first time in several quarters, which is a good sign,” analyst Michael Pachter of Wedbush Securities said, adding that flat growth in monthly users was a warning sign.
Overall revenue rose 2 percent year-over-year to $731.6 million, the first increase since the fourth quarter of 2016, beating Wall Street’s target of $686.1 million, according to Thomson Reuters I/B/E/S.
U.S. revenue fell 8 percent from a year earlier, but sales elsewhere rose 17 percent. Revenue from Japan was a particular strength, rising 34 percent to $106 million.
Twitter said revenue was helped by better ad targeting that raised clickthrough rates, or the likelihood users click on ads, and higher video ad sales.
The company also continued a push to grow its non-advertising revenue. It reported $87 million in data licensing and other revenue, up 10 percent from a year earlier, outpacing advertising revenue which rose 1 percent to $644 million.
Twitter reported a net profit of $91.1 million, or 12 cents per share, compared to a loss of $167.1 million, or 23 cents per share, a year earlier.
Adjusted profit was 19 cents per share, topping analysts expectations of 14 cents per share, according to Thomson Reuters I/B/E/S.
The company said it expects “to be GAAP profitable for the full year 2018,” referring to generally accepted accounting principles.
Twitter reported 330 million monthly active users for the quarter, a 4 percent increase from a year earlier but flat from the third quarter.
Analysts on average had expected 332.5 million monthly active users, according to financial data and analytics firm FactSet.
San Francisco-based Twitter said usage was hurt by seasonal weakness and a change that Apple Inc (AAPL.O) made to its Safari web browser that reduced the tally of users by 2 million. Twitter had warned investors about the factors in October.
Twitter also said in a shareholder letter it had stepped up efforts to reduce spam and automated and fake accounts.
Monthly active users in the United States, where Twitter makes most of its revenue, fell to 68 million from 69 million in the third quarter.
Chief Executive Jack Dorsey has focused for the past year on tweaking the product he co-founded to attract more users.
Dorsey doubled the number of characters allowed in each tweet in most languages and tried to limit user harassment on the site. Twitter has also struck deals with media companies for live news and entertainment shows.
Dorsey told analysts on a conference call that he was not planning a search to replace Anthony Noto, who is leaving as chief operating officer to become CEO of online lender Social Finance Inc and whose duties have been absorbed by others.
“We’re not going to have to do any backfilling,” Dorsey said.
Shares in Twitter had already surged 47 percent over the past 12 months as of Wednesday’s close, outpacing a 17 percent rise in the S&P 500 Index .SPX.
Social media companies are grappling with a regulatory backlash in Europe and the United States over privacy, possible user addiction, hate speech and alleged abuse of by Russia to sway foreign elections.
Reporting by David Ingram in San Francisco and Pushkala Aripaka in Bengaluru; Editing by Leslie Adler and Meredith Mazzilli