Stop me if you've heard this one before: Shares of Twitter (NYSE:TWTR) tank amid poor user figures.

That familiar story line has easily been the single most concerning theme for investors during Twitter's life as a public company. Shareholders were optimistic last quarter, when the microblogging service put up its best user growth in years, adding 9 million monthly active users (MAUs) sequentially in the first quarter. It turns out last quarter was the exception to the rule.

Different social media apps on a phone

Image source: Pixabay.

The cover-up

MAUs were flat at 328 million in the second quarter, while daily active users (DAUs) increased year over year by a seemingly impressive 12%. However, the company still refuses to disclose DAUs on an absolute basis, which just undermines the legitimate gains that Twitter is making with engagement. In fact, the lack of DAU disclosure only makes this comment from COO and CFO Anthony Noto all the more absurd (emphasis added):

Obviously, our focus has been on daily active usage. We believe we have content that's relevant everywhere in the world and it's relevant every day. And so we have elevated the importance of daily active users, the key driver of overall growth, both from an audience standpoint, engagement standpoint and also, from an advertising standpoint.

So Twitter has "elevated the importance" of highlighting DAUs as a growth driver, but still won't share how many there actually are? That makes no sense.

Twitter also attributed some of the weakness in the business to seasonal factors, yet was unable to provide detail on what these seasonal factors were when pressed by BTIG analyst Rich Greenfield. After initially blaming seasonality, Noto confessed that Twitter doesn't even know why MAUs were flat:

We don't have data that will explain the causal impact to that why the top of the funnel for U.S. MAU decreased. So it could be related to any number of exogenous factors, including fewer events, lower seasonal benefits, or organic trends. And so as we've dug into it, that's the conclusion that we've been able to draw based on the data and the analysis.

Investors can only guess as to the DAU/MAU ratio, an important metric for engagement. Noto provided some clues, responding to Greenfield again (emphasis added):

You asked the question of where we are in DAUs versus MAUs, and we have provided a perspective back in 2014 and yes, specifically about less than 50%. What I'd say is our DAU/MAU ratio, regardless of how you measure it, hasn't changed meaningfully or substantially one way or the other over the last couple of years. So there's still a significant amount of headroom for us to drive DAU growth without MAU growth.

I'm not sure how you can be specific, approximate, and less than, all at the same time, but OK. Using "specifically about less than 50%" implies "about less than" 164 million DAUs, which is comparable to Snap, which had 166 million DAUs as of last quarter. (Fun fact: While Twitter won't disclose DAUs, Snap won't disclose MAUs.)

The thing is that having anywhere from 150 million to 160 million DAUs is not that embarrassing in itself, even if the DAU/MAU engagement ratio is less than 50%. Investors are more concerned about the sheer fact that Twitter won't disclose DAUs, which suggests that it is hiding something. It's not the crime, it's the cover-up.

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