On Friday, the Washington Post reported that Twitter had deleted 70 million accounts through May and June after finding them to be fake. Though the announcement was made after the market had closed on Friday, Monday quickly showed the results of the news: Twitter’s stock fell sharply on July 9th, from $46.70 to $42.48, before recovering slightly to close at $44.10.
Twitter has been cleaning up its platform in the wake of new bot accounts that have been discovered — including Russian accounts that were believed to have influenced the 2016 U.S. presidential election. Twitter itself has 336 million monthly active users, which makes 70 million user account deletions initially appear to be alarming.
It’s believed that many of the accounts that were deleted by Twitter were dormant, and therefore were not directly impacting Twitter’s metrics. However, uncertainty regarding whether these numbers could impact Twitter’s later reporting has caused the stock to plummet. All of this revolves around an understanding of the metrics social media platforms use and how they impact valuation.
Though this downturn in user accounts may have prompted some investor insecurity, it’s likely that these more aggressive techniques may be a good thing for the platform long-term. Fewer fake users and bot accounts means an increase in high-quality, relevant content, which will ultimately improve the usability and reliability of the platform. Without bot accounts and fake accounts, it will be easier to identify real influencers on the platform, and businesses will receive more insightful and accurate metrics.
Bot accounts and spam accounts on social media platforms don’t add value to the system. This is an issue that all of the big social media companies have to contend with. Social media companies monetize their audience; their audience is, essentially, their product. Most of the big social media platforms are making their money through advertising, and they are advertising directly to their user base. If these users are fake, then advertisers aren’t going to want to advertise to them, and businesses who are advertising with them may become suspicious about their statistics.
Though every social media platform has its own way of ensuring the legitimacy of its accounts, these methods are not perfect. This is what Twitter has shown, as it has been increasing its deletion of fake accounts steadily over time — as it discovers new and better methods of detecting them. With numbers being as fragile as they are, it can be difficult to really determine how valuable a social media platform is. If investors suddenly find out that the numbers have been inflated, or that engagement is not what it appeared to be, they may flee.
Compounding this is the uncertainty related to the technology. Many investors themselves don’t understand the technology behind social media platforms or the metrics involved that truly indicate success. Consequently, something like tens of millions of users being deleted matters.
Though Twitter may have experienced an adverse impact on its valuation short-term, the strategy that it’s using is likely to be useful long-term. The question, however, is whether these fake accounts may have been previously impacting Twitter’s numbers — whether the next few reports from Twitter may show that engagement and activity is much lower than it previously appeared to be.
Regardless, though Twitter is aggressively deleting accounts, its monthly active users have been steadily increasing. Twitter stock has increased by 81% throughout 2018, and it may even be a good buy now that is price has fallen. Twitter has made global news multiple times as being a “first responder” to current events, and it continues to be one of the most prominent social media marketing and advertising platforms.
Regards,
Ethan Warrick
Editor
Wealth Authority
