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Twitter is growing, but is it fast enough?

Investors seem to like what they are hearing from Twitter (TWTR) executives.

The social network's shares closed Wednesday up 7.5 percent, at $42.54, after CEO Dick Costolo laid out his strategy for boosting growth. The goal: Make it easier for consumers to understand the service so they join, and make keep them happy so they stay around.

The obvious question is whether the company can deliver on that promise, especially given the turnover in the company's management ranks of late. Twitter also remains a ways away from turning a profit, and faces pressure to ramp up revenue from advertising.

The following chart illustrates the challenge. The blue line represents Twitter's stock price. Green shows the company's quarterly revenue, red is quarterly operating expenses, and orange shows the quarterly net profit, which in this case is a continued loss.


Twitter's push to increase revenue is causing expenses to grow at the same pace. Meanwhile, the only way for the microblogging service to turn a profit is for its sales to grow faster than its costs.

During an October 27 earnings call to discuss the company's third-quarter results, Costolo said Twitter is targeting three different, but concentric, groups of audiences. At the core are the people who regularly use Twitter every month. Next are those who come to Twitter's properties but don't log in, a group that is upwards of double the number of regular users. The third and largest group is the audience reached via tweets or timelines embedded in other content on the Web, or through connections third-party app developers can include in their software.

Twitter on Wednesday also unveiled several planned enhancements to its service. They include changes to the direct messaging function that lets one user privately contact another; offering ways to automatically populate the accounts followed when new people join the service; and providing users with options in how content is presented, especially in surfacing "relevant" messages that may have scrolled past while someone was logged off.

That could expand Twitter's user base, but it's unclear whether it will help the company control its spending, which have continued to rise as the service works to recruit and keep users. In fact, Twitter's user growth has stalled.

The greatest potential for Twitter may be in its outer ring of users, particularly among app developers that will be able to turn on revenue-generating ad services. But any improvements will clearly depend on management, and executives have left Twitter at a quick pace over the last year as the company has evolved.

New services may be one of the puzzle, in short, but so is managerial stability.