(Photo Credit: Scott Beale)

Twitter (TWTR) is set to report earnings for its 3rd quarter of 2014 after the market closes on Monday, October 27. Analysts are expecting Twitter to continue expanding and complete its first ever 2 quarter period with back to back profits on an adjusted basis.

As we’ve seen before with other social media companies (see LinkedIn below), Twitter is improving on the bottom line at a much faster pace than Wall Street has been anticipating. Contributing analysts on Estimize are forecasting that Twitter will report earnings of 3 cents per share and revenue of $360.59 million. That’s 2 cents per share higher than the Wall Street consensus and $9 million better on sales. Since Twitter had its IPO nearly 1 year ago, the company has consistently outperformed Wall Street’s earnings expectations, but the stock has been volatile due to inconsistent user growth metrics.

LinkedIn (LNKD)

Analysts often put emphasis on Twitter’s monthly active users (MAU), the size of its logged in audience. The theory is that if Twitter can establish a massive user base, eventually the profits will accumulate like they are doing for Facebook.

Last quarter Twitter reported 271 million MAUs, a 24% boost from the same quarter of 1 year prior. Coinciding with user growth Twitter’s revenue has been booming over the past 2 years, increasing by over 100% on a year over year basis in every quarter. Monday contributing analysts on Estimize expect the social media company’s sales to maintain their breakneck pace increasing 114%. Given that management provided guidance for a 99% increase, it’s difficult to imagine a scenario where revenue growth fails to break triple digits.

Twitter’s rise can largely be attributed to the company’s 200 million+ user base and monetization of mobile advertisements. Back in the summer quarter we saw booming sales numbers across the industry. Facebook, Google, LinkedIn, Twitter, and Yelp all put up outstanding quarters driven by thriving mobile engagement. So far in the fall quarter, the social media earnings landscape has been more complex.

At Google and Yahoo, the average cost per click for an advertisement fell. It doesn’t bode well for Twitter’s margins that the price per ad is dropping across the industry. At the same time however, volumes are at an all time high. One possible explanation is that mobile ad providers such as Twitter took note of Facebook’s success last quarter and ramped up their effort to cater to mobile advertisers.

We still don’t have a clear view of the social media and online advertising industry, but early indicators suggest that supply has risen faster than demand. After Twitter and the more influential Facebook release their earnings, we should have a better idea of what’s going on across the space.

More specifically to Twitter, the 140 character messaging company has been focusing on product improvements to spur engagement. Recent advances include a mute button to temporarily ignore another user and Audio Cards, a huge advance which allows users to listen to music and podcasts directly on Twitter’s platform. This should help keep users on Twitter rather than linking out to third party sites on the web. The longer Twitter can keep users engaged the more money it can charge to advertisers. 

Twitter has made strides in improving its fundamentals in recent months, but the company still has a long way to go to catch up to Facebook. Although revenues are soaring Twitter is barely profitable. Monday analysts will be looking for the company to maintain its record of beating Wall Street’s expectations and bolster its critical MAU count.