Twitter Inc (NYSE:TWTR) shares are sinking today, down 10% to $38.36 in early trading session. That’s despite better than expected first quarter results. The microblogging company posted Q1 revenues of $250 million with adjusted EBITDA of $37 million. Its global advertising revenue soared 125% YoY to $226 million beating the Wall Street expectations of $220.7 million. Data licensing revenue came at $24 million, above the analysts’ estimate of $21.4 million.

Twitter

Twitter is finding leverage faster than expected

What’s more, Twitter Inc (NYSE:TWTR) increased its full year revenue guidance to $1.2-$1.25 billion and adjusted EPS guidance to $180-$205 million. The San Francisco-based company’s ad revenue per 1000 timeline views increased 96% YoY to $1.44. Morgan Stanley analysts Jordan Monahan and Erhan Soyer-Osman said in a research note that Twitter is finding leverage faster than expected. The company’s EBITDA grew 215% YoY with a 14.8% margin. Morgan Stanley says Twitter will ultimately achieve high-40s EBITDA margin.

However, Monahan and Soyer-Osman said that Twitter Inc (NYSE:TWTR) may not become mainstream fast enough to justify its current multiples. As of March 31, Twitter had 255 million MAUs, slightly below the consensus estimate of 257 million. The company’s U.S. MAUs increased by 6% QoQ to 57 million, even though the quarter included many high-profile events such as the Sochi Olympics. The number of international MAUs spiked 6% to 198 million. Though international users account for 78% of Twitter’s total user base, they monetize at about 60% discount to the U.S. users.

Twitter’s user engagement should improve sequentially

Twitter Inc (NYSE:TWTR)’s timeline views per MAU was almost flat QoQ in the U.S. as well as international markets. Timeline views per MAU came at 614, well below Wall Street expectations of 650. Total timelines views also missed the estimates. Twitter reported total timeline views of 157 billion, while analysts were expecting 164.7 billion. Morgan Stanley says Twitter’s user engagement should show improve sequentially, just like Facebook Inc (NASDAQ:FB). Anyway, the company has introduced a number of new features to better utilize each view. So, it’s “good enough for now” but not in the long-term.

Morgan Stanley has an Underweight rating on Twitter Inc (NYSE:TWTR) with $36 price target.