Owing to a myriad of self-inflicting wounds and what some analysts have described as a lack of oversight and self regulation, the past couple of years haven't been great to Twitter (TWTR).
The microblogging giant was a hot acquisition candidate in 2016 as rumors of interest from the likes of Google (GOOG , GOOGL), Salesforce (CRM) and Disney (DIS) dominated headlines. But the companies were said to have lost interest in acquiring Twitter due to the platform’s reputation for abuse. Today’s version of Twitter, however, is different. While there are several pockets of rude behavior, the management has taken major strides to repair the company’s utility from the vulgar-infested stage it once provided.
So it comes as shock that further actions by the company to better serve its users is being seen as a negative. Twitter shares were under heavy selling pressure Monday, falling as much as 10% to a session low of $42.08 after the Washington Post reported that the company has ratcheted up its battle against fake and suspicious accounts.
The WP notes that the company, in an attempt to combat the flow of disinformation on the platform, Twitter has suspending more than 1 million accounts per day in recent months. According to WP data, between May and June, the company has suspended more than 70 million accounts. And so far in July there has been no slowdown. Twitter has been on record as saying that less than 5% of its user base are fake accounts or known to be involved in spamming activities.
As to why the stock sold off Monday? Obviously, Twitter needs strong user numbers to support its share price. Twitter is set to report second quarter earnings results in a couple of weeks, on July 27. And investors are anticipating that the rate of which the company is suspending accounts could result in a decline in user metrics such as MAUs (months active users) and DAUs (daily active users) — metrics used by advertisers to determine ad prices.
Twitter Chief Financial Officer Ned Segal clarified this topic on Monday, saying "Most accounts we remove are not included in our reported metrics as they have not been active on the platform for 30 days or more, or we catch them at sign up and they are never counted.”
In other words, while the long-term risk-versus-reward potential in Twitter is constantly up for debate due to the dominance of Facebook (FB), investors who bailed on the stock today may soon be forced to buy them back at a higher price. More importantly, there’s a great chance that the company can be profitable this year, which would mark a significant leap in the company’s investment profile.