Twitter Shares Fall, and That Might Actually Make Sense

Twitter shares fall after report says account suspensions to cause user decline

Shares of Twitter Inc fell 9 percent on Monday after a report said the social media company had suspended more than 70 million fake accounts in May and June, which could lead to a decline of monthly active users in the second quarter.

We in the tech world like to snark on Wall Street. Apple earns record revenue again and Wall Street kills their stock, only see it rise again within a few days: “how can they be so dumb?” we exclaim. So when Twitter shares dropped almost 10% after reports that they deleted 70 million fake accounts, tech people were once again flustered.

I was there too up front, after all, if they deleted 70 million fake accounts, then there are the same number of real accounts, if not more. Or more importantly, the number of actual eyes viewing ads is unchanged by this.

But here’s why I think it’s not as crazy as some suggest: if Twitter was actually overstating how many real users were using their service, then this drop in fake accounts may as well be real users. If I bought ads on Twitter assuming they got X users per month, and then I found out that that they deleted 70 million fake accounts, the X in this equation changes in a potentially meaningful way.

I don’t think it’s a case of Wall Street being stupid and not recognizing the difference between real and fake accounts, I think it’s a matter of them realizing Twitter didn’t have quite the reach they expected. It’s not that Twitter is worth less now that they’ve deleted these accounts, maybe they were less valuable than their stock value represented, and this is a correction.

Then again, I’m not a stocks guy, so this is just conjecture. This is more a friendly reminder to not assume people are idiots.