Twitter plots 2020 data center expansion, hiring spree amid strong Q4 growth, weaker earnings

Twitter's outlook fell short of expectations for the first quarter, but the company reported more than $1 billion in fourth quarter revenue. Earnings were a mixed bag.

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Twitter

Twitter plans to build a new data center, complete its core ad system and grow headcount by 20% in 2020 to support audience growth.  

The company reported better-than-expected fourth quarter sales as its advertising business delivered growth of 12% from a year ago as its data licensing unit added growth of 5%. Twitter reported fourth quarter revenue of $1.01 billion, up 11% from a year ago, with net income of $119 million, or 15 cents a share. Non-GAAP earnings were 25 cents a share.

Wall Street was looking for Twitter to report fourth quarter revenue of $996.74 million with non-GAAP earnings of 29 cents a share.

For 2019, Twitter reported net income of $1.47 billion, or $1.87 a share, on revenue of #3.46 billion, up 14% from a year ago. Twitter ended the year with 4,800 employees.

The company noted in a shareholder letter:

We made steady progress in Q4 on our two most significant revenue product initiatives. First, we continued our work to rebuild our core ad server. Over the course of 2019, we shipped new ad platform services designed to help us innovate faster and deliver better returns for advertisers. We remain focused on completing our ad server rebuild in the first half of 2020.

While earnings fell short of expectations, Twitter is delivering audience growth of 21% to 26 million monetizable daily active users. CEO Jack Dorsey said Twitter is building momentum into 2020. To support that growth, Twitter noted that it will be building out its data center operations. In a shareholder letter, Twitter also said it continued to "improve our machine-learning models" to provide more relevant content.

As for the outlook, Twitter said it will "grow headcount by 20% or more in 2020, especially in engineering, product, design, and research." Twitter also will build a new data center.

For the first quarter, Twitter projected revenue between $825 million and $855 million with operating income between break even and $30 million. Wall Street was expecting sales of $872.6 million for the first quarter. For 2020, Twitter projected capital expenses of $775 million to $825 million. 

CFO Ned Segal said the trick for Twitter is to convert infrequent users into everyday customers. He said: 

We continue to see a really consistent group of people who come to Twitter every day who haven't used the service for a month or more or who have never used it before. And the work for us continues to be to help them find what they're looking for and give them a great experience on the service so that they'll come back more frequently. We see lots of opportunity, both to continue to convert people who have been infrequent users of Twitter and to convert those who are new to the service to become people who want to use Twitter every day to find out what's happening in the world and what people are talking about. So lots of opportunity in both. 

Correction: Twitter's non-GAAP earnings in the fourth quarter were 25 cents a share not 17 cents a share as first reported.