Twitter and Snap: Tech fledglings take a leap

 Investors in Twitter and Snap have got used to bad news, so the tech laggards’ latest results were encouraging. Alice Gråhns reports.


Twitter CEO Jack Dorsey: optimistic
(Image credit: 2016 Fairfax Media)

Investors in Twitter and Snap have got used to bad news, so the tech laggards' latest results were encouraging. Alice Grhns reports.

"Twitter's stock rally may be as fleeting as a trending hashtag," says Amanda Gomez on Breakingviews. Reporting a first-time net profit for the quarter to December triggered a 20% bump in the social-media giant's market value last week. Naturally, chief executive Jack Dorsey seemed optimistic. However, Twitter's shift into the black was mainly due to a 28% drop in expenses in the fourth quarter from a year earlier. Revenue rose 2% year-on-year in the last quarter, but contracted more than 3% for the full year. Meanwhile, advertising rose only 1% in the last quarter and dropped 6% over the whole of 2017. Some may see the quarter as the beginning of a turnaround, "but it isn't much of one in the industry context": advertising sales at Facebook or Alphabet's Google grew at double-digit rates.

Nevertheless, "Twitter is undoubtedly an improved business", says Lex in the Financial Times. This is for one key reason: "it has reined in its ambition". By cutting operating expenses it has acknowledged that "it is a niche service that will not catch up with Facebook and Google". User numbers bear that out, as its monthly average users have stalled at around 330 million. Instead, "with the austerity approach now mostly played out, Twitter bulls have to believe its allure to marketers can continue to improve".

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A step in the right direction

Meanwhile, Snap, the parent company of social-media app Snapchat, "managed not to fall on its face during a quarterly earnings report for the first time in its history", says Shira Ovide on Bloomberg Gadfly. Advertising revenue beat expectations, and the rise in user numbers held steady. That's good news, even if the expectations "are so low that as long as Snapchat didn't catch on fire people would congratulate it for its good fortune". Ever since its initial public offering in March last year, it has been a "richly valued internet company with barely positive gross margins".

That's because it has outsourced the computing power it needs to run its services costs that are about 70% of Snapchat's basic expense to operate it which is one reason why it remains "wildly unprofitable". In the fourth quarter it made a net loss of $350m and operating cash flow was negative $735m for the year. Still, revenue came in at $286m an increase of 72% year-on-year, says Dan Gallagher in The Wall Street Journal.For a young firm still trying to prove its power as an advertising platform, the results were "a step in the right direction". But with its stock at 14 times forward sales, it "still has a lot of growing up to do".

Strange bedfellows will struggle to marry

"Necessity has made few stranger bedfellows than the Daily Mirror and the Daily Express," says Lex in the Financial Times. The two UK tabloids will have a common owner after Trinity Mirror buys the Express and the Daily Star from Richard Desmond's Northern & Shell for £127m in cash and shares, plus £70m in pension payments. About the only thing the papers share is falling circulations. That was reflected in 10.4% year-on-year fall in the left-wing Mirror to 725,000 in January. The right-wing Express, on the other hand, fell 4% to 392,000.

This is a marriage made in the finance department, says James Moore on The Independent website. Trinity "thinks it can rip out enough costs to make money from a stable of declining assets": boss Simon Fox reckons he could save around £20m in costs a year by combining the two papers under one roof. The firm also expects the decline in circulation to slow. Whether this will work is yet to be seen.

Fox "has been at this deal for ages", says Alistair Osborne in The Times. Talks broke down in 2015, when he switched his attention to the £220m purchase of regional newspaper group Local World. The good news is that there's no likely threat from competition regulators; the 1.33 million daily readership of the Mirror, Express and Star still lags The Sun's 1.48 million. At the same time, the extra size will bring more clout with the advertisers. But questions remain not least, if the "wily Desmond" is selling, can it really be a time to buy?

Alice grew up in Stockholm and studied at the University of the Arts London, where she gained a first-class BA in Journalism. She has written for several publications in Stockholm and London, and joined MoneyWeek in 2017.