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Twitter (TWTR) Stock Surges On Investor Optimism

Shares of Twitter TWTR surged over 16% on Thursday morning after it reported better than expected third-quarter results. Still, revenues fell and the social media company remained unprofitable, which begs the question: what has investors so excited?

The Good

One of the first big things Twitter investors are likely celebrating is the simple fact that the company grew its user base.

Twitter crushed analyst expectations by adding four million monthly active users in the third quarter, up 4% year-over-year. The social media company now claims 330 million monthly users. On top of that, the number of daily active Twitter users jumped 14%. And the company’s international revenues gained 6%.

The social media giant also demonstrated its increased commitment to live video, which could help grow its business amid the shifting television landscape. Twitter said it streamed 830 live events in the third quarter and secured 30 new live partnerships.

Twitter’s live video expansion helped the company’s total ad engagements skyrocket 99%. The cost of these advertising engagements dropped 54%.

The company now projects it will pull in $1.21 billion in digital advertising revenue for the full-year, which would help Twitter move into the top six of online advertising companies in the U.S.

Looking ahead, Twitter now projects it will post fourth-quarter profits if it reaches the high end of its adjusted EBITDA range—or $240 million. If the social media company reports a profit next quarter, it would mark a major milestone for Twitter, which has remained unprofitable since it went public near the end of 2013.

On the back of this positive news, Twitter shares climbed within 5% of their 52-week high.

However, amid all of the good news, there is still a lot that could make some investors nervous.

The Bad

Twitter posted revenues of $590 million, narrowly beating Wall Street estimates. But quarterly revenues fell 4% from the year-ago period. What’s more, Twitter posted a $21 million net loss, which marked a 79% year-over-year decline and helped lengthen its long losing streak.

Jack Dorsey’s company, like Facebook FB and Snapchat parent Snap SNAP, makes a large portion of its money from advertising revenues. Twitter’s vitally important advertising sales, which account for over 85% of the company’s total revenue, dropped 8%. Domestically, overall revenues sank 11% year-over-year.

Twitter also announced in its Q3 earnings report that it “discovered that since the fourth quarter of 2014 we had included users of certain third-party applications.” The company updated its user data for the past three quarters, lowering them by one to two million.

The Bottom Line

Twitter’s third-quarter results seemed to impress a lot of investors. Still, the company remained unprofitable and revenues declined, including vital advertising dollars. Based on our current consensus estimates, Twitter’s revenues are set to fall again next quarter and for the full-year.

Investors are likely banking on Twitter’s ability to increase its live video offerings as more people continue to dump cable, which at this point, might become paramount if Twitter hopes to keep investors happy.

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