Twitter shares jumped 10% in after-hours sales in response to revenue growth of 97%, compared with the same period the year before.
The microblogging service reported revenue of $479m and a net loss of $125m, both exceeding analyst expectations.
Investors were encouraged by Twitter’s ability to grow revenue from its existing users rather than being discouraged by a slowdown in user growth.
Finding a successful business model has long been considered vital to Twitter’s long-term success.
Twitter reported that the number of monthly active users grew by four million (1.4%) in the last quarter of 2014, but said the 288 million monthly active users represented 20% growth since December 2013.
But this figure is below market expectations of 295 million, and analysts said growing the user base remains a key challenge for Twitter.
US member growth remained flat at 63 million in the second half of 2014, representing 17% growth compared with the same period a year ago.
Analysts said while there is growth, it represents a marked slowdown and means Twitter's membership is still just a fifth of the size of Facebook's.
In an attempt to explain the slow growth, the company said it lost about four million users during the quarter as a result of integrating various third-party applications.
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One of these was an encryption issue related to the Twitter integration into iOS, which meant that when users integrated, many were not able to launch Twitter successfully.
Twitter chief executive Dick Costolo said the business was advancing at “a great pace” and addressed the slow growth by saying: “The trend thus far in Q1 leads us to believe that the absolute number of net users added in Q1 will be similar to what we saw during the first three quarters of 2014."
In a memo to staff leaked ahead of the financial results announcement, however, Costolo reportedly warned that bullying behaviour on Twitter was turning away users.
Analysts said Twitter will have to address the issue of bullying and abuse to ensure that it does not lead to an exodus of users and advertisers.
Twitter said its advertising revenue increased by 97% to $432m compared with the same period a year ago, with 88% of that revenue coming from mobile advertising.
Like Facebook investors, Twitter investors see mobile advertising revenue as a key indicator of future growth, and the service has made a successful transition to mobile devices.
In an effort to attract and retain advertisers in the fourth quarter, Twitter began testing “Twitter Offers” in the US, enabling advertisers to create credit card-linked promotions and share them directly with people on Twitter.
Twitter also launched “tailored audiences” for mobile apps, a new way for advertisers to create targetable audience segments based on mobile app actions such as installations, purchases or sign-ups.