Twitter’s Ad Business Is Surging but It’s Losing User Engagement

Total audience up but timeline visitors slip

Twitter's ad business is flying ahead of schedule, but users are not flocking like advertisers.

The company announced its fourth quarter and full year revenue today, its first financial results since going public last quarter. In 2013, Twitter's revenue reached $665 million and the company says 2014 will be the year it generates more than $1 billion in sales, according to the fourth quarter filings.

Some forecasts had predicted the company would fall shy of the $600 million mark in 2013.

Twitter's ad revenue hit $220 million, a surge of 121 percent year-over-year.

Now for the bad news. While Twitter's monthly user base reached 241 million, up from 232 million the prior quarter (184 million of those folks are mobile users), there have been concerns that for all the love from the ad world, Twitter's usage is well behind a rival like Facebook, which boasts of more than 1.2 billion members. And those concerns maybe be warranted: timeline views—a measure of how engaged Twitters users are, slipped quarter over quarter.

There had been worries that shares were overvalued even before today's results, and the stock dropped following the report, almost 12 percent to $58.27 in after hours trading.

Meanwhile, CEO Dick Costolo touted the company's best quarter to date in today's release. Last quarter, revenue rose more than 100 percent year over year to $242.7 million in the holiday period. Twitter also said revenue could hit the same level this quarter on way to potentially $1.2 billion for the year.

Also, 75 percent of ad revenue came from mobile during Q4. Still, Twitter posted a $511 million loss last quarter  thanks to generous stock awards to employees. This quarter, stock compensation was projected to be about $150 million.

Twitter lost $650 million last year despite its fast-growing ad sales.