Snap, Twitter Battle for Second Place -- by Different Measures

By Georgia Wells Features Dow Jones Newswires

Social-media companies Twitter Inc. and Snap Inc. are locked in a popularity contest -- but they haven't agreed on how their reach should be measured.

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Facebook Inc., their bigger rival, gives the number of users who use its platform at least once a month, 2.01 billion, and at least once a day, 1.32 billion.

But Twitter and Snap's Snapchat, which battle to be considered the second-biggest network, haven't disclosed metrics that facilitate comparisons between them.

Twitter, which has been around longer than Snapchat, says how many monthly users it has. When it reports third-quarter earnings on Thursday, analysts surveyed by FactSet expect it to post 0.5% growth in monthly users to 329.6 million.

Snap, which first released its user figures in February ahead of its IPO, discloses the number of daily users. A Snap spokesman said daily usage is a better reflection of engagement. At last count, Snap had 173 million daily users.

Snapchat's success in getting users to log on frequently and for long periods has pushed the industry to focus more on daily usage.

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"There isn't a consistent way people measure this," says Michael Nathanson, senior research analyst at research firm MoffettNathanson. "Each company picked the best metric to define their own narrative."

The different approaches have made it impossible to accurately compare the size and growth of social-media companies. But the metrics are the most basic way for investors, analysts and others tracking the industry to understand how many people use these networks -- and ultimately, how much these networks could earn from advertising or other sources of revenue.

Twitter has teased its daily use. In late 2016, to provide metrics beyond stagnant monthly user growth, Twitter told investors its daily users had grown 7%, without revealing the raw number. In the following three quarters, Twitter updated its daily user growth, and flagged it again to investors. That prompted the Securities and Exchange Commission to query Twitter as to why it wasn't providing the actual number.

Twitter said in a letter to the SEC in June that releasing its daily users could cause "confusion when comparing the company with other companies," such as Facebook, that calculate daily users differently.

A spokeswoman for Twitter declined to comment on why the company hasn't released its number of daily users. She also declined to comment on Twitter's discussions with the SEC.

Analysts say the monthly metric is good for assessing reach. Daily use, on the other hand, gives a sense of how users engage with the network. The average number of minutes users spend on an app is another metric that measures user engagement. Some companies such as video app Houseparty and anonymous polling app TBH, which Facebook acquired last week, emphasize downloads or sign-ups.

One reason for these discrepancies is a lack of regulation. The Financial Accounting Standards Board sets the rules for reporting financial results, and the SEC enforces them, but there isn't a governing body for the nonfinancial information that companies release.

When there is no commonly accepted method of calculating a particular nonfinancial metric, the SEC has said companies should provide an explanation of the calculation of a metric "to promote comparability" across parties within the industry.

Still, other industries, such as railroads and cruise lines, have managed to coalesce around certain nonfinancial metrics without certain regulatory oversight, such as train speed and the average time a train car spends at a specified terminal, says Jack Ciesielski, publisher of the Analyst's Accounting Observer, a research service for investors that discusses accounting issues.

Going forward, the metrics these social-media companies provide could change. Investors in earlier-stage social-media companies are demanding to see more data to describe a company's growth. Eric Kim, managing partner at Goodwater Capital, a venture-capital firm that focuses on consumer technology, says he wants to see new user adds, time spent and retention before making any investments.

But analysts say social-media companies that compete with Facebook also use different metrics with the intention of making direct comparison with the industry giant more difficult, and to try to emphasize why they are different.

Houseparty, for example, touts the 51 minutes the average user spends on its app every day.

"As a social-media company, you are trying to show your value add, and that will vary from platform to platform," a spokeswoman for Houseparty says. "Our value proposition is about being able to spend more quality time with people you would engage with in the real world."

(END) Dow Jones Newswires

October 25, 2017 12:36 ET (16:36 GMT)