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Can Twitter prove the skeptics wrong?

The Twitter logo on coffee mugs inside the company's headquarters in San Francisco.
David Paul Morris | Bloomberg | Getty Images
The Twitter logo on coffee mugs inside the company's headquarters in San Francisco.

Twitter investors have been less than impressed in the past year, sending the microblogging site's stock down 40 percent, even after a rally to kick off 2015.

Yet, when compared to the other top U.S. Internet companies, Twitter is still being priced for #awesomeness.

Of the six biggest U.S. consumer Web companies by stock market capitalization (Google, Facebook, Amazon.com, Yahoo, LinkedIn and Twitter), Twitter is the only one that doesn't make money. And still investors value the company at 20 times revenue, compared with a price-to-sales ratio of 16 for Facebook, the second-most richly priced of the group. The others trade for between two and 14 times sales.

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Twitter Chief Executive Officer Dick Costolo has a lot on his shoulders heading into the San Francisco-based company's fourth-quarter earnings report Thursday afternoon. Analysts on average predict sales growth of 87 percent from a year earlier to $453.1 million, according to a Thomson Reuters survey. The company is expected to report that its loss narrowed to 24 cents a share from $1.41.

None of the other Internet companies even approach Twitter's sales growth rate, with Facebook the closest at 49 percent in the latest quarter.

Because investors are betting that Twitter will outpace rivals for many years to come, Costolo has not only to show that revenue is growing faster than at other companies, but that a healthy number of users will continue to join the service. As an advertising business, Twitter needs more eyeballs for marketers to reach and needs people staying on the service for longer periods of time.

"While revenue and profitability are important, we believe the focus remains on user growth (arguably the most important metric for the business) and engagement," wrote Shyam Patil, an analyst at Wedbush Securities, in a Feb. 2 report. Patil has a "neutral" rating on the stock and a $40 target price, slightly above Tuesday's closing price of $39.79.

The company also launched several new services in the lead up to Thursday's report, most recently a deal with Google that means tweets will now show up in search results.

A Twitter spokesperson declined to comment for this story, citing the quiet period ahead of earnings.

In the third quarter, Twitter's monthly active user growth slowed to 23 percent on a year-over-year basis to 284 million, following growth of 24 percent in the second quarter and 25 percent in the first. Patil predicts that trend will continue, with the number of users increasing 19 percent in the fourth quarter to 287 million from 241 million a year earlier.

That makes squeezing more money out of each user critical. But it's not easy in a market where Facebook and Google, along with services like Pandora, Yelp and Pinterest, are battling for consumer attention and ad dollars. According to a report last month from eMarketer, Twitter's share of the U.S. mobile ad market will rise to 3.8 percent in 2016 (total pie: $40.2 billion) from 3.6 percent last year (total pie: $19 billion).

Twitter has one distinct advantage over the competition: the hashtag. Any major sporting event, political scandal or entertainment story drives people to converse on their devices, and the most vibrant conversations frequently take place on Twitter.

For example, during the live broadcast of Sunday's Super Bowl between the New England Patriots and Seattle Seahawks, more than 28.4 million global tweets were sent that were related to the game and halftime show, up from 24.9 million last year.

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Trying to turn more of that engagement into ad dollars is where Twitter is dedicating a ton of resources. Twitter spends about half its revenue on research and development, compared with 29 percent for Facebook and 16 percent for Google.

Fewer than half of analysts covering Twitter recommend buying the shares. Pivotal Research analyst Brian Wieser is in the minority, and he's bullish enough to place a $50 price target on the shares. Efforts to make money from users not logged into the service as well as from Twitter feeds on other media sites will soon start to pay off, Wieser wrote in a Jan. 14 report.

"We think there is increasing reason for positivity around the company's ability to monetize its platform," he wrote.