How Twitter's Blowout Quarter Changed My Mind -- It's Not Overvalued

NEW YORK (TheStreet) -- Complain about the valuation all you want, but Twitter (TWTR) just put on a textbook show of how to manage a growth company and a growth stock.

The microblogging leader beat Wall Street forecasts for the second quarter by a mile, saying it earned $14.6 million, or 2 cents a share, on revenue of $312.2 million. That topped forecasts for a loss of 1 cent a share and sales of around $280 million. Twitter's already-expensive stock zoomed by more than 28% in after-hours trading.

As well it should. The numbers were almost hard to wrap your mind around -- and a reminder of why Federal Reserve Chair Janet Yellen and the Fed's staff were on such dicey ground making even a mild warning about the "substantially stretched" valuations of social-networking stocks earlier this month.

Consider..

-- It's impressive enough that Twitter's sales grew 121% in the first half of this year, compared with 2013. The really off-the-hook number is that Twitter's second-half forecast says the company will grow more than 34% in the second half -- from the first six months of this year. It's a rate of compounding that makes even Twitter's multiple -- at Tuesday's closing price, it was 17 times this year's expected sales -- look increasingly sane.

-- The amount of revenue Twitter gets for each user is growing far, far faster than the number of users themselves. It has room to grow much more. The monthly average user base grew by about 24% in the second quarter (from last year) while ad sales jumped 129%, with 81% coming from mobile ads. Twitter is getting more advertisers to buy in, and finding more ad formats and strategies for them to use.

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