Why Twitter is finally cracking down on fake accounts

Twitter's attempt to clean its service of fake and malicious accounts may be bad news for celebrities losing millions from their follower counts, but it's likely to be good news for the company in the long run, analysts say.

Shares in Twitter seesawed this week after the Washington Post reported the social media company has deleted up to 70 million accounts since May for being fake, malicious or both.

The shares lost almost 10 per cent of their value in reaction to the news, as investors worried the culling would make a major dent in the tally of how many people use the service — the main way Twitter makes money, by drawing advertisers to its wealth of eyeballs.

While vaguely disputing some of the numbers of the report, Twitter did acknowledge a purge was underway, whereby the company is locking accounts that it thinks have engaged in behaviour such as:

• Tweeting a large volume of unsolicited replies or mentions;
• Tweeting misleading links; 
• Being blocked by a large number of accounts after mentioning them.

Some of the network's biggest users were hit, including Twitter's own account, which lost almost eight million followers after the mass banishment. U.S. President Donald Trump lost more than 300,000 followers, and his predecessor lost several million. 

Even Twitter founder Jack Dorsey got hit, to the tune of 200,000 followers.

It's part of the company's broader crackdown on malicious activity, which has caused critics to say the service is nothing more than a breeding ground for trolls and misinformation.

While the company hid behind the shield of free speech for years, in recent months it appears to be taking genuine steps to clean up its act. In May, Twitter revealed it was identifying almost 10 million spammy or automated accounts every week, more than three times the number it was finding as recently as last September.

In some ways, the crackdown is a risk to Twitter's business model, as even fake accounts can boost the amount of content on the service and increase the time people spend on it. "Deleting a large number of fake accounts ... raises uncertainty on near-term monthly user gains," Bloomberg Intelligence analyst Jitendra Waral said.

But shares rallied through the rest of the week to close on Friday about where they were before the story began. To financial analysts who cover the company, that makes perfect sense.

"We believe there is confusion around these numbers, and the sell-off is overdone" J.P. Morgan analysts said of the company after the shares fell. "We'd be taking advantage of the weakness and recommend buying."

That's because in the long term, it's in Twitter's best interest to clean up its act. Twitter was quick to note that none of the accounts it has locked in recent weeks were active in the past month, which means they won't make a dent in the company's closely watched Monthly Average User number, which numbered 336 million last quarter.

The shares sold off because of uncertainty, but getting rid of dormant accounts is a good thing for the service in the long run. "Improving quality on the platform is critical for the health of the service and attracting more users and driving stronger engagement over time," J.P. Morgan said.

"Over time," the bank added, "they should actually have a positive impact on attracting more advertisers and dollars to the platform."

Analyst Jonathan Kees with Summit Insights Group said in a note to clients this week that while Twitter is often criticized for its laissez-faire response to trolls, the company has been cracking down behind the scenes for a while now. 

"Twitter's A.I. has improved dramatically to include detecting questionable sign-ups," he said, adding that their "continued cleanup of fake accounts provides for a better environment for real users and boosts advertisers' comfort level with the platform."

Kees said he's reminded of another high-flying social media company that recently faced a public excoriation that wiped millions from the company's value. Earlier this year, Facebook was raked over the coals for its handling of user privacy, a public spectacle that went as far as having founder and CEO Mark Zuckerberg having to testify to Congress about how he planned to clean up the company's act.

• ANALYSIS: We're asking Facebook the wrong questions about privacy

Since then? "The stock has made its 52-week high," Kees said. "Despite Facebook's scandals, public lashing, ongoing investigations and investor questions about user growth, the stock has since rebounded."

He expects the same thing to happen with Twitter, and thinks the stock, currently changing hands at around $44 a share, will be worth about $52 a year from now.