1 Thing Twitter Inc. Management Doesn't Want You to Know

Source: Twitter.

During the second quarter, Twitter added just 2 million monthly active users quarter over quarter when you exclude its "SMS Fast Followers" -- users who access Twitter exclusively through SMS. Twitter's struggles with slowing user growth have been well publicized, as have its problems with engagement. Starting this year, Twitter stopped reporting the one engagement metric it used to give analysts: timeline views per user.

On the company's second-quarter earnings call, CFO Anthony Noto gave analysts a little insight into user engagement, and it's not pretty. He said daily users as a percentage of monthly active users in the company's top 20 markets fell from 48% in November to 44% during the second quarter. He followed it up by saying that the reason the percentage fell is "because we've grown MAUs faster than DAUs."

But if you take Noto's numbers and do the math, DAUs haven't grown; they've fallen.

Declining daily usersDuring the fourth quarter of last year, Twitter averaged 292 million monthly active users, including its SMS fast followers. Noto said that about 48% of those users came to the site daily -- that's 140.2 million. Last quarter, just 44% of Twitter's 316 million users -- 139 million -- logged in to Twitter daily.

"We have not historically focused on driving daily active user growth," Noto says. Still, it's the best indicator of user engagement investors have, and the trend is not good. Founder and interim CEO Jack Dorsey said he wants Twitter to become "the first thing everyone in the world checks to start their day."

The growth in monthly active users while daily active users declined or stayed flat indicates that Twitter is still having trouble retaining new users. Venture capitalist and early Twitter investor Chris Sacca says about 1 billion people have signed up for Twitter and abandoned their account. Dorsey led off the conference call noting that features such as Instant Timeline, which is designed to keep users engaged, have failed to have a meaningful impact on growing its audience.

Moving in the opposite direction of the competitionIt's understandable that daily active users might decline as a percentage of monthly actives, as more casual users join a service. But Facebook is bucking that trend.

Over the past two years, the ratio of DAUs to MAUs has increased from 61% to 65%. And even in the recent period of Twitter's sudden decline in DAUs, Facebook has added over 100 million daily users and increased the percentage of monthly users accessing the site daily by 1 percentage point.

Additionally, Twitter's daily user base may soon be overtaken by Snapchat, which isn't even four years old. The photo-messaging social platform claims nearly 100 million daily users. Twitter plans to compete with Snapchat with a new feature called Project Lightning, which borrows some ideas from Snapchat's OurStory feature.

Focus for 2016After Noto admitted that daily users aren't something the company focuses on, he assured analysts that "that's something in 2016 that we will consider more." But saying the company's not focused on daily users is a weak response to the inability for Twitter to grow its daily users. It shows a failure to keep new users engaged, as they now have more options to communicate and connect with their worlds through apps such as Snapchat, Instagram, Pinterest, and Facebook.

Of course, Twitter has been focused on growing daily users, even if not explicitly so. Features designed to improve engagement, such as Instant Timelines and While You Were Away, will also theoretically increase daily users. Features that add utility to Twitter, such as Shoppable Collections and Audio cards that play in the background, give users more reasons to check Twitter and should therefore increase daily users. But so far, these haven't moved the needle.

Twitter is undergoing a big management change. Not only is the CEO seat up for grabs, but the company also just saw three executives in its product division leave. Perhaps new leadership will spark new growth in Twitter's daily user base.

The article 1 Thing Twitter Inc. Management Doesn't Want You to Know originally appeared on Fool.com.

Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Facebook and Twitter. The Motley Fool owns shares of Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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