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Twitter Keeps Investing in a Future It Can't Quite Articulate

In the universe of social media, Twitter (NYSE: TWTR) occupies an unenviable space: Deeply popular among its core users -- in some ways ubiquitous -- and yet it's still vague about how to turn that into properly thriving business.

In this segment from MarketFoolery, host Chris Hill and Motley Fool Director of Small-Cap Research Bill Mann discuss its latest earnings report, which featured light guidance and a clear picture of rising operating expenses; the company's decision to stop making its monthly active users number public; and the apparent lack of high-level strategy from the C-suite.

A full transcript follows the video.

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This video was recorded on Aug. 9, 2017.

Chris Hill: Let's move on to Twitter. Fourth-quarter revenue and adjusted profits came in higher than expected and nobody cares. Shares down 10% on, among other things, pretty light guidance for the new fiscal year. We like it when CEOs are very transparent in their communication style. In this case, Jack Dorsey being up front about the fact that their operating expenses are going up in 2019.

Bill Mann: Yeah. They've added some employees, although it's still pretty light. They have less than 4,000 employees at Twitter, which surprised me. Twitter also has had an issue over the last several quarters where the number of monthly active users has dropped. One of the strategies that they have for solving this is that they're no longer going to report monthly active users. That should help! [laughs] And it's something that investors look very closely at, in terms of the health of this company.

Hill: See, maybe this says something about me, but I always opt for, maybe not outright cynicism, but --

Mann: Oh, you're a cynic!

Hill: I'm always instantly curious whenever any company that has been reporting a certain metric comes out and says, "We're not doing this anymore." Cynicism, not the right word. Skepticism.

Mann: You can be cynical! It's OK!

Hill: But, if there was an advantage in them to continue reporting it, they would.

Mann: That's right.

Hill: My default setting is, "Well, clearly there's no longer an advantage in it for you to keep reporting that number."

Mann: That's right. This is actually one of the greatest tips that I can give people in terms of trying to analyze companies. If you look back over a few years and they report or focus on different key performance indicators each time, it means that they're really just trying to show you at all times what looks best for them. Twitter's argument in this case is that it's a slightly misleading statistic since all of their monthly users are not worth anywhere near the same value. So, they feel like they've got a better measure than this. But this is something that people pay very close attention to. And the cynic or skeptic in you would definitely go to the fact that, yes, they are taking this away at a point in time in which it's been declining.

Hill: The stock is still up over the last 12 months, even with the drop today. Jack Dorsey has been doing a bunch of interviews lately, long-form sit-down interviews, both on podcasts and sitting down with magazines. He did that recently with Rolling Stone. Considering the fact that Twitter is a $23 billion company, Jack Dorsey still talks like someone who isn't sure what he wants this business to be.

Mann: Yeah. Twitter is such a mystery to me. One of the things that's always concerned me was the quality and the depth of the management. For a time, there was a revolving door. Jack Dorsey has been focused on a lot of different things. You hear more about him fasting or his weird diets or going to Burma or whatever it is that he's up to.

One of the things I look at for companies is, if a company disappeared tomorrow, would it be painful for its users? In this case, you'd definitely say yes.

Hill: For anyone who's on Twitter and uses it on a regular basis, I would absolutely say yes.

Mann: Yeah! I mean, it might make ESPN broadcasts a little easier. "LeBron James is tweeting about fencing," or whatever it is. But, it really is a utility in that way. But, at the same time, maybe it's just me, but I don't know what this company does to expand or to make its members and its users more valuable. I just don't see what Twitter can do, what lever they can pull. For a company worth more than $20 billion, it's not very profitable.

Bill Mann has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool has a disclosure policy.

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