Monthly active users (MAUs) growth is key to Twitter's Monday announcement. After the company revealed in July that it had added 16 million MAUs in the second quarter, the stock popped nearly 30 percent in after-hours trading. Still, that quarter featured the World Cup, which may have stimulated a lot of global interest in social media.
Despite analysts historically focusing on MAU, Costolo said logged out audiences "can be just as valuable."
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Twitter has launched a slew of new and improved products in recent months, including in-app promotions and video ads. These developments are intended to help the company win a piece of the burgeoning social advertising market currently dominated by Facebook.
"Across the landscape of $1 billion digital advertising businesses, we are the fastest growing business within that landscape," Costolo said, later adding that "we love the engagement rates we're getting with our ads."
Costolo revealed on the call that 85 percent of Twitter's total ad revenue is now generated from mobile devices, up from about 70 percent a year ago.
Costolo also addressed criticism that his company is poorly run.
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"What I lack in hair and 20/20 vision, I more than make up for in self-confidence. I'll tell you that the team that I've got in place and the strategy that we've got, we love and we all believe it in," he said. "And we know that when we're successful, Twitter will be useful and vital to every person on the planet."
As for why the stock fell sharply on the earnings announcement, some are pointing to market-wide trends.
"Investors are looking for growth, looking for profitability and at least here they were a little disappointed in terms of at first glance," said Daniel Ives, an analyst at FBR Capital Markets.
—CNBC's Michelle Fox contributed reporting.