Twitter shares fall over 10% on earnings report

Twitter reported quarterly earnings that met analysts' expectations on Monday, but the stock abruptly fell in after-hours trading after the company issued guidance that disappointed investors.

The company posted third-quarter earnings per share of 1 cent, which matched expectations, according to a consensus estimate from Thomson Reuters.

Revenue for the quarter came in at $361 million, beating estimates of $351 million. Twitter posted a revenue of $169 million in the same quarter last year.

Twitter CEO Dick Costolo at the NYSE for the Twitter IPO launch.
Adam Jeffery | CNBC
Twitter CEO Dick Costolo at the NYSE for the Twitter IPO launch.

The tech firm's fourth quarter guidance is in the range of $440 to $450 million. Analyst estimates for that quarter averaged $448 million.

Twitter stock fell over 10 percent in after-hours trading.

"This wasn't a disastrous quarter. It's just that valuation gets in the way," said Guy Adami, "Fast Money" trader.

The company also announced that it had grown by 13 million monthly active users to 284 million—a 23 percent year-over-year increase. This metric is "priority number one," Twitter CEO Dick Costolo told CNBC after the announcement.

"We have an aspirational goal to build the largest daily audience in the world," he said, adding that this group also includes "hundreds of millions" of users who never log into the platform.

Read More 140 things you don't know about Twitter

Costolo said the company is seeking to "deploy experiences that are super valuable and engaging to that logged out audience no matter how they come to the platform."

One figure that actually declined for Twitter was its timeline views per monthly active user—falling from 793 to 774 in the United States since the prior quarter. This was the second straight quarter that engagement metric fell.

This decline was expected, as "the year-over-year decline primarily reflects the changes we've been making to allow users to more efficiently access our content," Twitter CFO Anthony Noto said on the call following the announcement.

Still, Noto said this metric remains Twitter's primary measurement for engagement. Internal analysis shows that newer users are viewing their timelines less than longer-term members, he said, but this group eventually ramps up average use after some time on the platform.

Twitter meets earnings expectations
Twitter meets earnings expectations   

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."

Read MoreWhat investors were looking for in Twitter earnings

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.

Read More 'Probably a lot of pot-smoking' at Twitter: Thiel

"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.