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Belt-Tightening No Longer Key Driver of Twitter’s Profitability

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Twitter turned $106 million profit

If Twitter’s (TWTR) latest quarterly results show anything, they show that the company’s profitability is no longer underpinned by belt-tightening. Twitter’s first-ever quarterly profit in the fourth quarter of 2017 was mostly achieved on the back of a cost-cutting regime. In that quarter, Twitter’s expenses declined 28% YoY, the steepest drop in a year.

Even though Twitter’s expenses have begun rising again, the company remains profitable, even posting improving profits. In the third quarter, Twitter generated a net profit of $106 million excluding a $683 million one-time tax benefit. The profit increased from $100 million in the previous quarter.

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Cash holdings rise to $6.0 billion

As Twitter generates profits, the company is also adding to its cash reserves, which stood at $6.0 billion at the end of the third quarter compared to $5.7 billion in the previous quarter and $4.3 billion a year earlier. The company generated $327 million of free cash flow in the third quarter.

Shareholder capital return program

Twitter currently doesn’t have a shareholder capital return programs such as dividend distribution or share repurchase, through which companies typically return excess cash to their shareholders. But its industry peers Facebook (FB) and Google parent Alphabet (GOOGL) have active share repurchase programs through which they are seeking to return $9.0 billion and $8.6 billion to their shareholders, respectively. Yelp (YELP) and eBay (EBAY) also return value to shareholders through share repurchases. In the third quarter, Yelp repurchased shares worth $6.0 million, and eBay repurchased shares worth $1.0 billion.

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