Doing the Right Thing Is Shaving 10% Off Twitter Stock

Technology

Published: July 9, 2018 11:55 am

Last Updated: January 11, 2020 9:18 pm

Over the past two months, Twitter Inc. (NYSE: TWTR) has suspended more than 70 million accounts that the company believes are either fake or otherwise suspicious. The Washington Post reported Friday that the purge continues in July as well.

The impact of the company’s actions is being reflected in its share price Monday morning. The stock traded down nearly 10% as analysts and investors try to evaluate how the shutdowns will affect the company’s active user rolls.

At the end of the first quarter, Twitter reported 336 million active users. If 70 million accounts have been suspended, that’s a loss of 20%. But there’s a difference between accounts and active accounts. Twitter’s vice-president for trust and safety, Del Harvey, told the WaPo that many of the questionable accounts were not tweeting regularly.

In a blog post from late June, Harvey and colleague Yoel Roth reported that Twitter had identified and challenged nearly 10 million “potentially spammy or automated” accounts. In December of last year, the company challenged 6.4 million accounts, and in September 2017 the number of challenges totaled 3.2 million. The company is removing 214% more accounts for violations of its spam policies than it did a year ago.

The company’s campaign against fake accounts, bots and trolls is the result of Russian interference in the 2016 U.S. elections and pressure from Congress on social media companies to mend their ways.

On one hand, removing fake and suspicious accounts will lower the company’s user numbers. Because growing the company’s user base is an important metric for analysts and investors, anything that reduces either growth or the total number of users is a concern.

On the other hand, Twitter could effectively argue (and demonstrate with data) that these purged accounts are making the platform more welcoming and safe for real people and that their engagement with Twitter is up and that the demonstrated value of those users is greater than some total inflated by fake accounts.

Just before noon, Twitter shares traded at $42.30, down 9.3% for the day, but up from an intraday low of $42.08. The stock’s 52-week trading range is $15.67 to $47.79, and the 12-month consensus price target is $32.52.