Twitter Inc. took a beating in after-hours trading today, its stock down more than 11% after missing expectations on user growth and offering lower-than-expected guidance for the next three months.

That took the sheen off an otherwise solid performance. Twitter reported a first-quarter profit before certain costs such as stock compensation of 16 cents per share on revenue of $1.04 billion, up 28% from a year ago. Wall Street had modeled an adjusted profit of 14 cents per share on revenue of $1.03 billion.

Twitter said its advertising revenue rose 32% from a year ago, to $899 million, while data licensing sales rose 9%, to $137 million.

Twitter Chief Financial Officer Ned Segal said in a letter to shareholders that the company’s “solid start” to 2021 was thanks partly to the acceleration of its recent initiatives around app promotion and brand advertising. “Advertisers continue to benefit from updated ad formats, improved measurement, and new brand safety controls, contributing to 32% year-over-year growth in ad revenue,” Segal said.

Twitter also reported a net profit of $68 million, contrasted with a loss of $8.4 million a year ago.

There are two remarkable takeaways from Twitter’s first quarter of the year, analyst Holger Mueller of Constellation Research Inc., told SiliconANGLE.

“First is that Twitter was actually profitable, a very rare feat for the company,” Mueller said. “Second, Twitter spent more on its research and development than it did on sales and marketing in the quarter. That’s likely to be good investment, as the social media industry is redefining itself for the post-pandemic world and adjusting to new competitors.”

Another analyst, Charles King of Pund-IT Inc., told SiliconANGLE that Twitter did very well from a financial perspective and deserves congratulations for turning last year’s loss into a profit.

Unfortunately for Twitter, it seems that its shareholders are more concerned with its growth prospects than anything else, and in that respect the company was perceived to have underachieved. Twitter said it had 199 million monetizable daily active users, its preferred metric, up from 166 million a year ago, but below the 200 million figure that analysts were looking for.

The company’s second-quarter guidance also came up light. Twitter said it’s expecting to pull in revenue of between $980 million and $1.08 billion over the next three months, the midpoint of which came below Wall Street’s consensus of $1.06 billion. Officials also forecast a net operating loss of between $120 million and $170 million.

Investors may have been rankled further by Twitter’s warning that its costs and expenses related to new staff hires are expected to rise by 25% this year. The company said adding more staff would increase its stock-based compensation costs. As such, it now expects full-year stock compensation of $600 million, up from an earlier estimate of between $525 million and $575 million.

Twitter also spoke about the recent privacy changes implemented by Apple Inc. in iOS 14.5. The company said it’s too early to understand the full impact of those changes. However, it said its integration of Apple’s SKAdNetwork enabled it to increase by 30% the total number of iOS devices it can reach with its Mobile Application Promotion offering.

King said investors may well be concerned about Twitter’s lower-than-expected guidance and its slow user growth, but he noted that much of the focus in today’s shareholder letter was about what the company is doing to increase transparency, curtail abuse and ban users who attempt to use its platform to spread misinformation.

“Coming just days after Apple introduced iOS features that hamstring the advertising and tracking technologies of Facebook and other social sites, that seems notable,” King said. “If investors are looking for companies willing to do virtually anything to monetize their daily active users, they should look beyond Twitter. But for investors who are seeking profitable companies that are also trying to do the right thing, Twitter may be worthy of consideration.”

Image: Celtikipooh/Flickr