Person using Twitter on iPhone
James Davies—Alamy

Twitter Jumps on Strong Earnings. Trouble Is, It's Still Not Profitable.

Jul 30, 2014

When you get used to receiving complicated messages in a short amount of space — in, say, 140 characters — you grow accustomed to overlooking key details.

That was evident late Tuesday, when investors reacted to Twitter's earnings announcement by sending shares of the social media company soaring more than 30% in after-hours trading.

TWTR Price Chart

TWTR Price data by YCharts

Investors pounced on some better-than-expected results found high up in Twitter's earnings release. This included the fact that revenues in the second quarter jumped 124% to $312 million, and that the company earned $0.02 a share, slightly stronger than what analysts had been expecting.

Nevermind that those profits were based on an adjusted, alternative method of measuring earnings that critics have come to criticize. Using generally accepted accounting principles (GAAP), Twitter actually lost $145 million in the quarter, or $0.24 a share.

What's more, Wall Street analysts tallied by Zacks.com still expect Twitter — based on GAAP standards — to lose $0.98 a share in 2014 and another $0.87 a share in 2015. So it's probably premature to regard the second-quarter results as a breakthrough for the profitless company.

User Growth Rebounds

To be fair, there were promising developments in the second quarter. Twitter reported that so-called timeline views, which are the company's equivalent of page views, hit a record 173 billion in the quarter.

This was an important point, as timeline views in the prior quarter fell short of the company's peak performance in 2013, despite the fact that there are more Twitter users than ever.

In the second quarter, the Twitter's so-called average monthly active users (MAUs) rose an impressive 24%. Active users who use mobile surged even more, by 29% in the past year to 211 million.

By comparison, timeline views grew a relatively modest 15%, which means the company still needs to work on converting Twitter account holders into truly active users.

This morning, three research firms changed their rating on Twitter stock in the wake of the company's earnings results. Bank of America upgraded its recommendation on the stock to a "buy". UBS upgraded its rating to a "neutral". And Pivotal Research downgraded the shares to a "sell" as Thursday evening's surge pushed the stock above analysts' target price.

That pretty much sums up the still-cloudy picture at Twitter.

All products and services featured are based solely on editorial selection. MONEY may receive compensation for some links to products and services on this website.

Quotes delayed at least 15 minutes. Market data provided by Interactive Data. ETF and Mutual Fund data provided by Morningstar, Inc. Dow Jones Terms & Conditions: http://www.djindexes.com/mdsidx/html/tandc/indexestandcs.html. S&P Index data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Terms & Conditions. Powered and implemented by Interactive Data Managed Solutions