Twitter Inc (NYSE:TWTR) shares plunged as much as 11% on April 29 despite better than expected first quarter results. The San Francisco-based company posted $250 million in Q1 revenues and adjusted EBITDA of $37 million. Wall Street was expecting $241 million in revenues and $19 million in adjusted EBITDA. The microblogging company’s ad revenue skyrocketed 125% to $226 million, while data licensing revenue stood at $24 million. Twitter also raised its FY2014 revenue estimate to $1.2-$1.25 billion, and EPS forecast to $180-$205 million.

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Twitter’s user metrics disappoint investors again

EBITDA margin of 15% was almost double the consensus estimate of 8%. Twitter Inc (NYSE:TWTR) also showed significant gross margin leverage with 70% gross margins. The company said it will continue to invest heavily through 2014. RBC Capital Markets analyst Mark S. Mahaney said in a research note that it’s right move for Twitter at this stage. The company’s Q2 guidance suggests almost 100% revenue growth and full year guidance implies 160% YoY EBITDA growth. Mahaney said all these things imply the strongest growth outlook in the sector.

However, investors were disappointed with Twitter Inc (NYSE:TWTR)’s user metrics. The company ended the quarter with 255 million monthly active users, well below analysts’ estimate of 257 million. Timeline views per MAU was almost flat QoQ at 614, compared to the consensus estimate of 650. Total timeline views came in at 157 billion, missing analysts’ call for 164.7 billion. However, advertising revenue per 1000 timeline views soared 96% to $1.44.

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Twitter has just begun its ‘mainstreamization’ efforts

Despite investor concerns on user metrics, RBC Capital Markets analyst Mark S. Mahaney remains bullish on the stock. The research firm maintains its Outperform rating with $60 price target. What’s more, Mahaney has increased his FY2014 revenue estimate by 3% and EBITDA guidance by 11%. Mahaney believes that the user metrics will eventually inflect up as Twitter Inc (NYSE:TWTR) introduces new features to improve the appeal of its platform.

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Mahaney said that Twitter Inc (NYSE:TWTR) has the ability to become one of the leading utilities on the web. He is positive on Twitter due to migration of TV ad budgets online and mobile materiality. Recent decline in the stock suggests that the company needs to provide two things. One, Twitter mush demonstrate that it can successfully increase its reach with advertisers. The microblogging company’s strong Q4 and Q1 advertising revenue growth shows that it has that capability. Two, it will have to successfully increase its user base and engagement. Twitter’s recent metrics don’t provide a clear evidence of strong user growth momentum.

But RBC Capital Markets says that Twitter Inc (NYSE:TWTR) has just started its “mainstreamization” push by incorporating media elements and other features. Mahaney is confident that Twitter’s user metrics will improve eventually.

Twitter Inc (NYSE:TWTR) shares rose 1.23% to $39.57 at 12:59 PM EDT on Friday.