Why Twitter surprised Wall Street

July 30, 2014, 10:22 PM UTC
LEON NEAL/AFP—Getty Images

As Tuesday’s earnings proved, Twitter isn’t quite the beleaguered business people thought it was.

It reported strong second quarter results that surprised the Wall Street naysayers. Revenue more than doubled to $312 million from the same time last year. Meanwhile, the number of active users grew a very healthy 24% to 271 million. As a result, Twitter’s shares gained 20% on Wednesday to close at $46.30.

That Twitter (TWTR) handily trumped Wall Street’s expectations signals a significant reversal, given that over the last three quarters, the social network’s earnings have disappointed.

Colin Sebastian, an analyst with Robert W. Baird & Co., chalks up much of Twitter’s success in recent months to global events like the Olympics and World Cup that helped highlight the value of Twitter as a source for information on-the-fly. He pointed to Twitter’s users tapping out 500 million tweets daily as a sign of just how much of the service has become a global water cooler.

“The company continues to improve applications and make it more useful, such as adding rich media, like photos and videos,” Sebastian explained.

Paul Vogel, a Barclays Capital analyst, said that Twitter’s growing user base is also clicking on more advertisements — on the order of 250% more year-over-year, to be exact. To keep the ad momentum going, Vogel expects Twitter to soon focus more on video tools that would let marketers like the National Football League create and tweet brief clips on the service as well as on other sites.

Twitter has already made some headway there. Last year, Twitter introduced Amplify, a video advertising product that lets brands and TV networks share live or pre-recorded video on Twitter. Initial partners included BBC America, FOX and The Weather Channel. To date, Amplify has largely been used to reach Twitter users during live events like sports and awards shows. For the 2013 U.S. Open tennis tournament, Heineken beer used Amplify to send out 124 Tweets with video, which was viewed by nearly 12 million users. The campaign was successful enough that Heineken plans to use Amplify again at this year’s upcoming tournament. On Wednesday’s earning call, Twitter CEO Dick Costolo emphasized the value of Amplify “to partner with TV and other content creators and help them increase their audiences.”

Such products, along with Twitter’s improvement of the overall experience, will remain key to deciding whether its second-quarter earnings are the start of a positive trend towards profitability. Despite surprising revenue and user growth, Twitter still reported $145 million in losses, partly due to stock-based compensation — over three times the $42 million loss from the same period last year.