Twitter user growth wows investors, but concerns remain

Twitter (TWTR) wowed investors with its earnings announcement yesterday afternoon. Aside from a 124 percent year-over-year growth in quarterly revenue to $312 million, Twitter saw a 24 percent increase in average monthly users.

That's the number of people who check into the service at least once a month, and it's the main metric right now that drives Wall Street's love. The jump stemmed worries shareholders showed after first quarter results when user growth hit the brakes. Shares shot up 29 percent in after-hours trading.

User growth is everything to Twitter investors at the moment because losses are scaling up far faster than revenue gains. The nearly $145 million loss in Q2 was almost 243 percent of the $42 million loss in the same period of 2013. But all isn't right with the Twitterverse. Despite the ebullient market mood, the growth trend is still down.

Here's a CBS MoneyWatch graph of Twitter's year-over-year user growth every quarter since the beginning of 2012:

The decline in growth was slight in the second quarter, rather than the jump between the end of 2013 and beginning of 2014. But there seems to be a pattern in the data. Growth erosion slows between the first and second quarters of a year and then accelerates again.

That is why getting excited over a one quarter improvement can be premature. Overall, the growth trend is still downward, although the declines have flattened out. Wall Street likely hopes that the number will settle in around 20 percent, which is still a significant expansion.

However, the latest quarter's performance also benefited heavily from the World Cup competition. Twitter was smart to personalize the experience to fans of different countries' teams. Still, there was an unusual boost from the world's biggest sporting event that only happens periodically, not annually.

Furthermore, although it saw more of a pickup in the second quarter, U.S. user growth is significantly below international. The difference is critical because of what Twitter calls ad revenue per thousand timeline views, which refers to every time people look at the list of messages they see on Twitter. In the U.S. the number is currently $3.87, versus $0.75 for international users. Both are up from 2013's levels: $2.63 and $0.38, respectively. Currently, international monthly users outnumber U.S. users by 350 percent. But Twitter needs the higher U.S. revenue to help boost its results.

The real question for Twitter is what will happen with user growth during the current quarter, when there is no World Cup activity to keep the tweets flying.