Facebook false accounts disclosure fail investors’ expectations

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CORONAVIRUS IMPACT

Facebook stock continues to plummet from what was a $38 overhyped IPO price to where it seats now, at around $20. Investors have started to wonder where the social media company is heading?

In addition,  in an updated regulatory filing released Wednesday, Facebook  said that 8.7 percent or approximately 83 million of its 955 million monthly active users worldwide are actually duplicate or false accounts.

Duplicate or false accounts mean unreal users without purchasing power and revenue generating abilities. Officially, 83 million undesired accounts were detected and divided by Facebook into three categories: duplicate accounts, misclassified accounts and “undesirable” accounts. Duplicate accounts make up 4.8% (45.8 million) of Facebook’s total active member tally. According to the network’s terms of service, users are not allowed to have more than one Facebook personal account or make accounts on behalf of other people.

Misclassified accounts are personal profiles that have been made for companies, groups or pets. Those types of profiles (22.9 million) are allowed on Facebook, but they need to be created as Pages. Facebook estimates that 2.4% of its active accounts are these non-human personal accounts. These accounts can be converted into approved pages without losing information.

The third group is the smallest — just 1.5% of all active accounts — but most troublesome. There are 14.3 million undesirable accounts that Facebook believes have been created specifically for purposes that violate the companies terms, like spamming.

“We believe the percentage of accounts that are duplicate or false is meaningfully lower in developed markets such as the United States or Australia and higher in developing markets such as Indonesia and Turkey,” the company said in the filing. The tallies were based on an internal sampling of accounts done by reviewers, and Facebook says the numbers may represent the actual number.

The company’s openness about this issue deserves some appreciation, but it rises a question, to why it insists on reporting figures that include what it knows to be somewhat misrepresented. In this case, Facebook reports 955 million active monthly users when according to its own investigation the real number is likely 100 million fewer.

The business model of online advertising relies on targeted viewers. The higher the number, the higher the rates.

However, the Facebook IPO and constantly popping-up controversies about the users numbers will have an impact in the way investors view technology and social media initial public offerings. Facebook’s continued stock decline will likely change the way future IPOs are viewed and scrutinized.

Facebook has failed to live up to investors’ expectations.

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