One of several factors that drove Twitter's (NYSE:TWTR) strong user growth in the first quarter was the decision to copy Facebook's (NASDAQ:FB) approach to the timeline. The service began exploring algorithmic curation over a year ago, and despite initial backlash, the change is clearly helping.
In this segment of Industry Focus: Tech, Motley Fool analyst Dylan Lewis and contributor Evan Niu, CFA, discuss Twitter's user metrics.
A full transcript follows the video.
This video was recorded on April 28, 2017.
Dylan Lewis: Looking beyond those financial numbers, you mentioned what's going on with users. They're now at 328 million monthly active users worldwide, which is up 9 million sequentially. That's really great to see. We've been looking at this stagnating user growth for quite some time, so it's great to see them notch what amounts to a meaningful bump here. I think it's the strongest sequential addition they've had in two years, back when they reported something like 14 million in Q1 2015. What do you think is really pushing those gains, Evan? Because they've been doing so much on the platform to improve engagement and get people logging in more often and engaging with the platform more. They've been doing a huge push with live-streaming and getting some programming there. They've been experimenting with push notifications. They've been rethinking the company's timeline approach. Rather than having it be just sequential and based on recency, they try to curate content a little bit more. Do you think there's any one thing that's really getting people more engaged?
Evan Niu: I think it's a combination. They mentioned on that call a couple of factors. One is, in the U.S. particularly, there's been a big rise in political engagement, so people following and interacting with political-related content. Which makes sense, given the current political climate. It's kind of a crazy climate, so people are getting more engaged. But the hard part is, it doesn't seem like that's translating into ad sales, necessarily, which is the next step of that equation. And like you mentioned, the algorithmic curation. It's funny, they announced that a year ago, and Twitter users freaked out, they were like, "You're just trying to become Facebook."
Lewis: Yeah, that was not a popular decision, when they decided to do that.
Niu: Yeah, they got so much backlash. I don't understand why these really enthusiastic Twitter users were so upset about this. Compared to a strictly unfiltered reverse chronological feed, which is hard to use unless you're literally constantly on there and you'll see everything in real time, which, no one does that --
Lewis: And, also, because of Twitter's platform, there's so much noise. Having a reverse chronological feed sets you up to look at a lot of stuff you just don't want to see.
Niu: Exactly. Thinking about it fundamentally, the point of having algorithmic curation is to unearth content and tweets that are more relevant to you as a user, based on your behavior and data around what you interact with. Shouldn't any social media user of any platform want more relevant content? I just don't understand how that is some terrible thing to some of the people who really spoke out against this. I mean, it's very likely that it's just a very vocal minority that was making a big fuss about this. It's obviously helped. More relevant tweets helps engagement. You don't have to waste as much of your time trying to find the information or content you're looking for, if Twitter is going to help you with that process and showing you information you might be interested in. And they've introduced a lot of features with that idea in mind. It's definitely helping, clearly.
Lewis: One of the numbers we can look at for that -- and they don't break it out specifically for us, but we can glean it from growth rates -- is how daily active users compare to monthly active users. I know this is something that you've written a little bit about on fool.com. Seeing daily active rise 14% year over year, while monthly actives were up 7% year over year, that says that people are generally coming back to the platform more, even as monthlies are growing.
Niu: Exactly. This is the fourth or fifth quarter of daily active user growth accelerating. The growth rate has been trending higher over the past year. Again, over the past year is when they've been innovating these product changes, particularly with the algorithmic curation. I don't know if they're making much progress on the whole abuse side of it. That's always been a big problem, and they always say they're doing stuff to help, and they always say they're making progress. And there's no really good way to measure this. It's not like there's metrics around abuse. [laughs] At least, maybe internally they have some metrics they follow. But as far as public investors go, it's not like we can look at some hard number and see that abuse is going down. So you just have to take their word for it. But their word on this topic doesn't really have a lot of weight because they've had this long history of being way too passive when it comes to abuse and harassment on their platform. They said that making progress there has also helped engagement. But, again, I think it's probably more about the other factors, because I don't give them too much credit about actually fighting abuse, because they seem a little too complacent there.
Dylan Lewis owns shares of Facebook. Evan Niu, CFA owns shares of Facebook. Evan Niu, CFA has the following options: long January 2018 $120 calls on Facebook. The Motley Fool owns shares of and recommends Facebook and Twitter. The Motley Fool has a disclosure policy.