SEC Asks Twitter Why It Doesn't Disclose Daily User Number

(Bloomberg) -- The Securities and Exchange Commission has asked Twitter Inc. a question that many investors also have: why not disclose your number of daily active users?

Twitter reports the number of monthly active users, which stood at 328 million for two quarters. The company tells investors to focus instead on the percentage growth of people who use it daily, which has increased more than 10 percent in each of the last three quarters. But Twitter doesn't say what that percentage represents.

In a May 10 letter, the SEC asked for Twitter to explain that choice, and “tell us how the percentage change information provides an investor with a clear understanding of user engagement on your platform.”

In the company's lengthy response, it argued that showing growth was more important than showing the number. In fact, Twitter said, showing the number of DAUs would invite unfair comparison to Facebook, which calculates its number including people who use its separate Facebook messaging application. “Investors would not be able to compare performance between the Company and this other company,” San Francisco-based Twitter wrote. Facebook has six times the number of monthly users as Twitter.

Twitter doesn't want it to be easy for investors to calculate its daily user number. The company used to say what proportion of monthly users also visited daily, but the number only applied to its top 20 markets. It told the SEC that it didn't want to disclose a ratio because it “would indirectly disclose the absolute number of DAU,” shifting focus away from the growth percentage, which Twitter says is more important.

Twitter faced questions about the number on its earnings call last week, too. It put out a clarification statement after the report, giving two clues about the number: that daily users make up less than 50 percent of monthly users, and that there's a lot of room for growth.

On July 3, the SEC told Twitter it was satisfied with their answers. But some analysts aren't.

“It takes guts to make the claim that the percentage change is more important than the absolute number of daily users, especially considering that's the primary driver” of Twitter's business model, said James Cakmak, an analyst at Monness Crespi Hardt & Co. He estimates that Twitter's DAUs are from 80 million to 100 million, compared with Facebook's 1.32 billion and Snap's 166 million.

To contact the reporter on this story: Sarah Frier in San Francisco at sfrier1@bloomberg.net.

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew Pollack, Molly Schuetz