Twitter (NYSE:TWTR), it seems, is taking out the trash, culling millions of inactive and fake accounts. But perhaps when a company publicly admits that some significant fraction of its supposed user base might be an illusion, the market gets twitchy.
In this segment from MarketFoolery, host Mac Greer and senior analysts Taylor Muckerman and Jason Moser consider what it all might mean -- bad or good -- for the company's bottom line, and whether it changes their investment thesis for Twitter.
A full transcript follows the video.
This video was recorded on July 9, 2018.
Mac Greer: Guys, let's close with Twitter. Twitter cleaning up their act. The Washington Post reporting Friday evening that Twitter is suspending more than one million fake accounts each day. I hear that, and I think, that's good. That's good news. But, apparently, investors don't feel the same way. At the time of our taping today on Monday here, shares of Twitter down more than 9%. Jason, what gives?
Jason Moser: Let's be clear. There's a lot of hypothesizing going on here. We don't actually know a lot factually, other than they're culling inactive bad accounts. We don't have numbers to put around it.
Greer: Are they fake accounts? Or should I dial that back?
Moser: Well, fake or inactive, whatever you want to call it. Basically, they're taking out the trash. I think Wall Street is trying to put some numbers around this. I think somebody was throwing out one million accounts per day. This is unsubstantiated, but if you do the math, you think, one million accounts per day, over 30 days, that's 30 million accounts, yada yada yada. Who really knows?
My bottom line takeaway is, Twitter the stock has certainly had a wonderful run this year. That's for a number of reasons. I think that management has done a very good job of changing the conversation away from monthly active users and more toward the daily users side, because that's where Twitter is a bit more relevant.
This to me is just Wall Street thinking at its finest. I look at something like this and I think, there's a lot of uncertainty just based on the lack of exact information on what they're doing and how to quantify it. It's still the same platform that it was on Friday. For me, I see this, and I think, OK, I'll be OK. I wouldn't sweat it.
Taylor Muckerman: And those aren't revenue-generating users. If they're bots, they're not eyeballs that are going to be clicking on ads, they're not going to be purchasing anything. We do the same thing here at The Motley Fool with our email marketing channels. Every six months, in Canada, at least, we purge our email file of people that aren't active. That doesn't really impact our subscription sales because they weren't going to buy anyways.
When you look at this, it gives a higher revenue per user number for Twitter. Certainly, as a user of Twitter myself, I'm very appreciative of them cleaning up the trash. One other thing they talked about was eliminating some dissemination of untruthful news and material, similar to what Facebook is trying to do. I'm not too worried about this one, either.
Greer: So, this is another case of Wall Street just being short-term focused?
Muckerman: They lose a metric to balance their numbers against.
Moser: Yeah, more than likely. It's fair to say that Twitter, the optimism is a bit up there. It's had a great year; the stock has been on a terrific run. That's for a number of different reasons.
Greer: One of our analysts was recommending it a while back, I forget who.
Moser: [laughs] We'll see if we can't talk about that maybe after taping.
Greer: It was Jason Moser.
Muckerman: Stock of the year!
Moser: To Taylor's point, I think a higher-quality network is better, even if it's a smaller network. A higher-quality network is better than a low-quality network. That low-quality network, whether it's bots or trolls or whatever, that really stifles engagement and growth. This is one of those decisions that's more long-term focused, it's more forest for the trees.
Jack Dorsey and his team are one of the most transparent management teams out there today. All you have to do is scroll through his Twitter feed to see what I mean. For me, I look at this as a long-term decision. We look at Twitter as an investment to hold on to for years to come. One day isn't going to change that.
Muckerman: If you look at this, if they haven't been doing this before -- this is a big number because it's been a backlog of things that they should have done over a rolling period. So, if this continues to be a thing that they do, that unsub number starts to shrink on a daily, monthly basis.