At long last, Twitter (NYSE:TWTR) is sharing how many daily active users (DAUs) it has on the platform, a move it has long resisted in favor of pointing to the percentage growth of DAUs as evidence of growing engagement. Twitter has long disclosed monthly active users (MAUs) to investors. As part of the social media company's fourth-quarter earnings release, it introduced a new metric: monetizable daily active users (mDAUs).

The move comes as larger rival Facebook (NASDAQ:FB) is also changing its own reporting, focusing on its broader family of apps instead of just the core Facebook platform. Here's how to make sense of Twitter's change of tune, and why the company's really doing it.

Woman walking by a Twitter logo

Image source: Twitter. Image copyright Atsushi Nakamichi for Twitter, Inc.

An about-face

Twitter defines an mDAU as a daily user that is logged in to the platform and is able to see ads. That's a direct contrast to the total audience strategy that the company used to tout, which included all viewers of Twitter content, specifically incorporating logged-out users. The nuanced definition also acknowledges that a lot of users view tweets outside of the platform, such as when tweets are embedded in articles on third-party sites -- where Twitter can't advertise to them.

mDAUs rose to 126 million in the fourth quarter, and Twitter lost MAUs for the third consecutive quarter.

Chart comparing mDAUs and MAUs

Data source: Twitter. Chart by author.

That's not a good trend, and Twitter is even going as far as to discontinue disclosing MAUs after the first quarter, arguing that mDAUs are the most important user metric for the business. Furthermore, remember when the SEC tried to get Twitter to start disclosing DAUs in 2017, and the company pushed back? Here's how it responded to regulators that summer:

The absolute number of DAUs is less important than the percentage change in DAUs because the key factor is whether engagement is increasing or decreasing on a relative basis. Percentage change in DAUs is a performance indicator that is currently used by the Company's management to evaluate the health of the platform, and the Company believes that sharing that metric with investors enables them to see the Company through the eyes of management. The Company also focuses investors on percentage change rather than absolute DAU numbers to avoid confusion when comparing the Company with other companies that disclose information regarding DAUs, but use different definitions of DAUs that may include different segments of their respective user bases.

In other words, Twitter is doing a complete 180 regarding its reporting.

Monetization, engagement, and relative size

Twitter's mDAU and MAU bases are mostly stable in the U.S. (where monetization is strongest), with all of the mDAU gains and MAU losses coming from abroad. Fortunately, Twitter is improving its ability to monetize users. While the company doesn't disclose average revenue per user (ARPU) like other social media companies, advertising revenue is growing in the U.S. (up 24% to $425 million) even as user metrics are essentially flat.

With the new data point, investors can also look at the ratio of mDAUs to MAUs, another indicator of engagement (one that Facebook also uses). Roughly 39% of Twitter's MAUs are active on the platform on a daily basis, well below Facebook's 66% proportion in the fourth quarter.

Check out the latest Twitter earnings call transcript.

Surprisingly, Twitter's mDAU base is also smaller than Snap's (NYSE:SNAP). The Snapchat parent does not disclose MAUs. Twitter says that its mDAUs are "not comparable to current disclosures from other companies," which include users that aren't seeing ads. The company is clearly trying to distance itself from unfavorable -- and inevitable -- comparisons to other platforms.

mDAUs or DAUs

Q4 2018

Facebook (DAU)

1.52 billion

Twitter (mDAU)

126 million

Snap (DAU)

186 million

Data source: SEC filings.

Snapchat has stopped growing DAUs, although its user base appears to be stabilizing. It's encouraging that Twitter is at least still growing global mDAUs, even if there are caveats around the new disclosure.

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