Twitter Inc. disclosed Wednesday that it mistakenly overstated the number of users on its platform by more than 1 million for three years in a row.
- Twitter shares fell as much as 5 percent in extended trading.
- The mistake came to light after Chief Executive Officer Jack Dorsey reorganized the engineering department and promoted two executives to run it, according to people familiar with the matter who asked not to be identified discussing internal matters. Those changes prompted a review that revealed incorrect data tying back to at least 2014 and possibly earlier, they said.
- The blunder comes after Facebook Inc. revealed last week that it had miscalculated the average time users spent watching videos on its site for two years. Both social-media companies are under scrutiny from investors and advertisers for the accuracy of their data, particularly now that they’re facing increasing competition from Alphabet Inc.’s Google and Snap Inc.’s Snapchat for digital ad dollars.
The miscalculation was due to a glitch that counted users who logged in through third-party applications, like TweetDeck and some other mobile applications, as monthly active users.
When Twitter launched its TweetDeck application, it counted users who logged in through third-party applications, like TweetDeck and some other mobile applications, as monthly active users. It turns out that was a mistake.
It was an honest software bug in an algorithm Twitter had used since 2014 to count its active users. Specifically, the company mistakenly double-counted people who also used Twitter’s application programming interface (API), which is a way for developers to access data from other programs and apps besides the ones directly on Twitter itself.
The error affected the way Twitter reported user numbers and financial results since the fourth quarter of 2016, with each successive quarter being off by about 1 million more than the previous one.
In total, through June 30th of this year, there were actually 326 million average monthly active users on Twitter rather than the previously reported 328 million, according to an SEC filing issued last week that disclosed the blunder but didn’t specify when it started or ended.
Twitter said that it had fixed the error, but not before restating user numbers and financial results dating back to the first quarter of 2016.
Twitter has been sued by investors who say that they’ve lost money on Twitter’s stock because the company overstated its user numbers. The lawsuit alleges that Twitter’s misrepresentation of how many users it had is a violation of laws against securities fraud.
- Twitter may have to pay a fine if it loses the lawsuit, or if regulators find wrongdoing. If the company is found to have violated securities laws, the Securities and Exchange Commission (SEC) could impose fines on Twitter.
- Twitter may be forced to give investors money back. In addition to paying fines, if the SEC finds that investors were defrauded by false information about user numbers, “the commission will also seek to recover any ill-gotten gains,” Garson said.
- The case may be referred for investigation by a stock market regulator; this investigation could expose other financial problems at Twitter that would affect its share price and user trust in the company.
The company also said the issue had no impact on advertising revenue or choices made by advertisers using its platform.
Twitter said it informed the U.S. Securities and Exchange Commission about the issue on Thursday, and that it was not aware of any concerns from its advertisers as a result. The company also said the issue had no impact on advertising revenue or choices made by advertisers using its platform.
“So, you’re saying this isn’t important? That nobody cares about inflated user numbers?” one might ask. But why would Twitter lie? Because they can.
They’re a publicly traded company that is beholden to shareholders and the stock market instead of users. If you’re part of their target audience (i.e., an advertiser), you need access to as many people as possible to get your message across and make money off of them—and if they have 1 million more users than they actually do, then what’s the harm in telling everyone that?
Twitter disclosed the error in a filing with the Securities and Exchange Commission on Thursday. The company said its monthly active users for the quarter ending June 30 were actually 325 million, rather than 326 million as previously reported.
The company blamed incorrect assumptions in its automated systems that inflated both total and timeline view metrics by including user accounts or activity as coming from third-party applications when they had not.
“We corrected this issue in our fourth quarter 2017 metrics and we are confident our data is now accurate,” Twitter CFO Ned Segal said on Twitter (TWTR).