Social-Media Platforms Lay It On Thick

The tech industry hasn’t been shy about coining its own dubious metrics over the years. But lately, even the basic ones aren’t to be trusted.

Social-media investors have historically focused on two key figures: advertising dollars and user numbers. Ideally both would be growing hand in hand, but a big move or sudden reversal of trend in one or the other can often trigger a major change in share price.

Ad revenue is money and, we have to hope, not something that can be so easily fudged or forgivably miscounted. User numbers are a different story. All social-media companies seem to have their own standard for how they measure their breadth. Reporting four of them,

Meta Platforms

FB -2.56%

simultaneously shares so much and yet so little. It tells you how many people use its Facebook app and its broader “family” of apps on a daily and monthly basis, respectively. Even though its hottest asset these days is Instagram, those specific user numbers remain anyone’s best guess.

As recently as 2018,


TWTR -0.18%

was telling investors that daily active user growth was “the best measure” of its success in driving the use of the platform as a daily utility. But in early 2019, Twitter introduced a novel metric, “monetizable daily active users,” which it defined as those users who could view ads. The new metric is “not comparable to current disclosures from other companies,” Twitter said in its fourth-quarter 2018 shareholder letter, noting its goal wasn’t to disclose the largest daily active user number it could. That was convenient: Back then Meta’s Facebook app seemed to have around 10 times the number of daily users as Twitter did.

Snap Inc.’s

SNAP -1.21%

Snapchat reports daily users, but


PINS -3.21%

doesn’t. Per its annual filing, Pinterest’s growth efforts “are not currently focused on increasing the number of daily active users, and we do not anticipate that most of our users will become daily active users.” You could give them credit for not trying to be something they aren’t, but you have to imagine the daily tally is pretty unimpressive for the company to open itself up to perhaps the most intimidating comparison ever: Like Pinterest, Meta also calculates average revenue per user with monthly user metrics. In the U.S. and Canada, Facebook generated an average of more than $48 per monthly user in the first quarter; Pinterest generated $4.98.

Ultimately, most user metrics are a bit hazy, no matter which a company opts for. Twitter said Thursday it actually misstated its mDAUs for 12 consecutive quarters through the end of last year, giving itself credit for multiple accounts being owned by a single user. The difference wasn’t particularly large: Twitter said it accounted for about 1.9 million fewer monetizable daily active users in the fourth quarter of 2021, for example, out of a restated total of 214.7 million.

Similarly, Meta said in a filing that in the fourth quarter of 2021 around 11% of monthly active users for its Facebook app could be duplicate accounts.

But small changes can go a long way on Wall Street. Pinterest shares flew more than 13% higher Thursday after the company’s first-quarter report suggested its monthly active users might be stabilizing. After three straight quarters of declines, Pinterest said it added two million monthly active users in the first quarter. Then again, the company also said its monthly active users as of April 25 were 432.9 million, suggesting a slight decline from its first-quarter reported figure of 433 million. Pinterest declined to elucidate whether the difference was due to rounding.

Meta’s shares imploded, losing more than a quarter of their value in one day, after the company said its daily active Facebook users declined by one million sequentially in the fourth quarter. But its shares soared more than 17% Thursday following first-quarter earnings that showed Facebook’s daily active user base was back to sequential growth, among other things.

Meta’s latest quarterly filing opens with a disclosure of “limitations of key metrics,” specifically user ones. The company talks about inherent challenges in tracking usage of its products, adding that it requires “significant judgment” and is also susceptible to technical errors.

It goes on to note that regular review of its calculation processes can result in adjustments to its historical data, which it said it generally doesn’t intend to update so long as the changes fall within its error margin. While that margin varies by period and category, Facebook said for its global family of apps it could generally be defined as approximately 3% of its monthly active users. On a base of 3.64 billion in the first quarter, that would equate to about 109 million users. In short, it makes little sense for the stock to make big moves on quarterly fluctuations of just one million or so users.

In recent months, tech companies have gone from being speculative winners to potential value plays with the social-media sector hardly an exception. Shares of Meta, Pinterest and Snap are down an average of 41% this year thus far.

Prices could now be quite compelling—unless of course you are wildly overvaluing key fundamentals.

Write to Laura Forman at laura.forman@wsj.com

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