Twitter Overstating User Metrics Is a Gimmick, Not a Glitch

by | May 11, 2022 | Whistleblower Law

Twitter’s latest earnings release revealed that the company overcounted its user accounts by nearly 2 million each quarter for the past three years. Twitter explained it as an internal error due to the company counting multiple accounts linked to a single user as active. In other words, Twitter counted the single user with multiple accounts as separate monetizable active users. Did we mention – for at least three years?

This was not the first time Twitter overstated quarterly user numbers. In 2017, Twitter admitted that it overstated its monthly-user figures since 2014. The company explained that they made a mistake by including data from third-party applications in its counting.

What Does This All Mean?

The number of active users provides a measure of the general health of a company. It also serves as a basis to calculate other informative metrics. Looking at active user metrics could lead advertisers, investors, and shareholders to believe that a product’s user base is constantly growing. From a monetization point of view, the high number of active users often equates to a high growth rate of revenue. However, company metrics that are clearly unreliable could lead to the false and fraudulent inflation of the company’s revenues. In other words, active user growth statistics may not be the best measure of the company’s success. Unfortunately, there may be too many companies that take advantage of an unreliable metric to inflate revenue numbers.

So What?

Many companies rely on ad business and user metrics to generate revenue. Investors and shareholders watch for user growth and monitor a company’s quarterly figures and financial prospects. Relatedly, the requirement for companies to provide complete and accurate information to investors and shareholders is a foundational principle of the federal securities law regime. Specifically, the Securities and Exchange Commission (“SEC”) pursues a broad range of charges against companies and company executives for failing to disclose to investors that a significant portion of its profits were obtained through a fraudulent and illegal scheme or an omission of a material fact to investors. Misrepresentation and omission of material information are among the most common allegations in SEC fraud investigations.

Whistleblowing Is Not Just For Insiders

Any individual could trigger the SEC to initiate a fraud investigation against companies and executives that expose investors and shareholders to unwarranted risk and harm as a result of any misrepresentation and/or omission of material information. Company insiders can significantly contribute to the success of an SEC enforcement action. Certain outsiders can also be familiar enough with a particular company and/or industry to provide the SEC with detailed and non-public knowledge that makes for effective whistleblowing. The SEC awarded approximately $1.2 billion to 238 individuals since its first award in 2012. Any recoveries are made from an investor protection fund established by Congress that is financed through monetary sanctions paid to the SEC by securities law violators. The SEC also protects the confidentiality of whistleblowers and does not disclose any information that could reveal a whistleblower’s identity.

The takeaway from the news that Twitter miscounted its user accounts is that we need individuals—both insiders and outsiders—to serve as gatekeepers to keep out fraud. Those who come forward with the knowledge or familiarity with a common fraudulent practice will assist the SEC enforcers greatly. Advertisers deserve better. Investors and shareholders deserve better.

Our Team Will Advocate For You

At Sanford Heisler Sharp our team of highly skilled lawyers knows what it takes to help whistleblowers expose wrongdoing and recover substantial awards. If you have any questions or concerns about how your company is generating revenue through ad business and tracking user metrics, please do not hesitate to get in touch with our firm for a consultation. To request your case consultation with SHS, call 646-791-4848 or use our online contact form.