Why Twitter Is Massively Overvalued
Or, What I Discovered While Trolling
“It’s a horribly mismanaged company—probably a lot of pot-smoking going on there,” investor Peter Thiel once said. Dick Costolo, Twitter’s (now-ex) CEO, mocked Thiel by saying that he had the munchies replying sarcastically that he was “working my way through a giant bag of Doritos.”
But Thiel was right. Twitter is literally and figuratively smoking pot.
And it shows. Twitter’s stock is in free fall. The company has no revenues and it’s been around for more than 9 years. Instead of focusing on Twitter’s core problems Costolo has decided that it’s the trolls and his inability to manage them. He even apologized to them, according to The Verge.
We suck at dealing with abuse and trolls on the platform and we’ve sucked at it for years. It’s no secret and the rest of the world talks about it every day. We lose core user after core user by not addressing simple trolling issues that they face every day.
I’m frankly ashamed of how poorly we’ve dealt with this issue during my tenure as CEO. It’s absurd. There’s no excuse for it. I take full responsibility for not being more aggressive on this front. It’s nobody else’s fault but mine, and it’s embarrassing.
We’re going to start kicking these people off right and left and making sure that when they issue their ridiculous attacks, nobody hears them.
Costolo was fired as CEO this past July 1st. Good riddance.
Now, I note with some delicious irony, he’s positioning himself as a free speech advocate for the “world’s smallest voices” now that he’s been fired for incompetence. What a fraud. It’s hard to claim that “regulation [of social media] is a threat to free speech” when you purge people whose views you disagree with. If Twitter really is a “broadcasting system for the internet” and a “utility” as new interim CEO Jack Dorsey told investors why is it censoring people?
Noted civil libertarian Alan Dershowitz called out Twitter for censoring me.
For anyone who truly supports the open marketplace of ideas, twitter’s decision to ban Charles Johnson from its influential stall in that marketplace is unjustified. Let people who disagree with Johnson try to reply to him rather than try to censor him.”
But Twitter’s executives have decided to blame their failures on little old me.
Blame the business model, not the trolls
Rather than deal seriously with Twitter’s real problems—how to monetize an open protocol—Costolo has ducked responsibility all the while he says he’s claiming responsibility for the problems. As I’ve been referred to variously as a troll, the “world’s largest troll,” an “infamous troll,” “notorious troll,” a “mega troll,” “a troll on steroids,” etc., I might well be in a position to speak up on the trolls behalf. Not only has Twitter banned my account it’s also banned the accounts of my company, my friends, and whistleblowers who I have taught to use the technology at my home.
A word on trolling: Forget what you’ve heard about the word “thug” calling someone a troll is the new ‘n-word.’ Like the word gadfly before it “troll” is meant to shut down an argument through dehumanizing someone rather than take someone seriously. It’s an evasion of responsibility rather a recognition that advertising isn’t the proper business model for open protocol based communication platforms. Unlike radio or television it’s too hard to capture value. As I’m the only person in the history of Twitter to be permanently banned for using a metaphor I might say that I’m the first person to be purged for my political views. No one—not even DeRay McKesson who didn’t inform law enforcement about my supposed threat—believes I threatened McKesson. (Except, of course, the libelous CNN.)
But is Costolo right? Are trolls ruining Twitter?
No, Costolo is exactly wrong. Trolls have made Twitter interesting and trolling has a long tradition in civic discourse. Indeed it may well be the only means by which weaker powers defeat stronger players in the court of public opinion. And it’s becoming more common:
Voltaire was a troll, Charlie Hebdo was a troll, Solzhenitsyn was a troll, Trey Parker and Matt Stone are trolls. So is Banksy. Ai Weiwei, who has taken to Twitter to fight censorship in the Chinese regime, is a troll. To troll in the internet age is to be a dissident. A troll deals in the commodity of attention and on the Twitter—where information is ubiquitous—attention is power. It doesn’t much matter how you get attention on Twitter but it does matter what you do with that attention. There is clever trolling and dumb trolling just as there are clever jokes and bad ones, good art and bad art.
I have used bombastic, pompous, sarcastic, cutting, bitchy commentary to draw attention to ideas that are not permitted in our discourse by the media cartel. I’ve combined it with one of the best research outfits in the country, built, in large measure. I have deliberately triggered feminists and antagonized black criminals and radicals and media hacks and corrupt politicians. I’ve broken news that’s changed lives and offended all the right people. That is my real thought crime. Taboos are fun to explode and that’s why I created an addictive relationship with so much of my Twitter audience. That’s why you can still see people talking about me and my work over a month after my purging.
I was censored three times for being a better journalist than my critics:
1) by publishing the name of the ebola nurse—Nina Pham—twelve hours before everyone else did
2) by publishing the address of Youngor Jallah who was supposed to be quarantined for being exposed to ebola
3) by publishing the name of Jackie Coakley, the girl who lied about the University of Virginia rape
All of these actions constitute real journalism but it’s journalism that my critics would suppress.
What even is doxxing anyways? Posting private information? If you can find that information quickly through a Google search and link to it why is it a problem? Why can the New York Times publish Darren Wilson’s address? And I can’t publish theirs? And who says that I can’t? Why does the New York Times—owned by a Mexican monopolist who preys on poor people—get to set what is acceptable and what is not?
Twitter’s social justice problem
Twitter has a social justice warrior problem that winds up forcing its core users off the service. It’s not a coincidence that the social justice warrior movement is at its apogee at the same time Twitter’s stock is plunging. If Joss Whedon—king of the nerds—can’t find a home on Twitter no one can.
It’s social justice warriors who are doing the persecuting and purging as anyone can see from Jon Ronson’s book, So You’ve Been Publicly Shamed. Too many people are losing their jobs over things that we would shrug off in real life. Twitter is a job killer of even ordinary people. Just ask Justine Sacco, the public relations executive who lost her job because of poor tweets. Pax Dickinson, one of the technologists at Business Insider, lost his job because he made fun of Mel Gibson, Jesus, rape culture, and blacks—a rather impressive feat in only a 140 characters. (Shouldn’t Henry Blodget—who was banned from Wall Street—know a thing or two about forgiveness?)
These kind of persecutions could have been solved if Twitter had worked harder at deciding what could trend and what couldn’t but they didn’t care so ordinary people could become a target of social justice warriors if they weren’t the right color, if they didn’t think the right thoughts. George Orwell’s two-minutes of hate became the trending tweets that reduced your earning potential forever.
The Terms of Service Policy is an unclear joke that ultimately winds up creating a negative interaction—with Twitter. Twitter’s relatively few employees can never police the entire conversation of millions of users. Del Harvey a.k.a. Allison Shea essentially admitted as much in a TED talk. (The talk was given after she reportedly served as a secretary a corrupt charity that entrapped people which undermines her whole concern about caring about people.)
Twitter will necessarily fail to properly apply standards and they’ll be selective in what speech is censored. Despite all the protestations that Twitter had in favor of so-called net neutrality because it would lead to censoring content, Twitter began censoring content but only some content, only that content of trolls.
There’s no due process.
And the censorship will start to affect others as well. Milo Yiannopoulos and Adam Baldwin were next after me.
Twitter then ultimately has a distinctly left-wing bias: the only people who give a damn enough to report someone are the sorts of tattletales you avoid in real life. Ultimately this policy has been used to silence white males by feminists. (I can’t wait for the disparate impact analysis of all the whites and Christians Twitter has suspended.)
It’s better to be in the mind than to be ignored. Twitter is a means of getting into that mind. Get into the mind and you’ll annoy your critics who will advertise your work to the idiots or the curious. I actually agree with DeRay McKesson—that Twitter is a radical place—but it’s far more radical than just instigating riots. It can expose people to dangerous ideas and these dangerous ideas can lead to the collapse of unjust regimes.
The trick is to be living in the brain of your critics. This is how mind control ultimately works. If your critics have a thousand or a hundred thoughts a day, it’s important to be one of them—even if it’s negative. And if you hate the media—and I do—this is extremely important.
While everyone focuses on retweets and favorites and follower counts Twitter has hidden metrics for awarding placement and getting attention: page views. The sensational then will always get more eyeballs—especially for breaking news when information is relatively scarce and especially when the source is on the scene and therefore has authenticity or legitimacy. I would routinely use incendiary language to draw the media in. While publicly the journalists were quick to condemn me (and status signal amongst themselves) they had no problem stealing my original research on topics like North Korea hack, Brian Williams and Hurricane Katrina lying, and the Rolling Stone fiasco. The algorithm of what travels and what doesn’t travel on Twitter is inherently nihilistic—and manipulatable—especially if you don’t care what your critics say about you.
My name trended twice. My journalistic critics hated me and so their critics began to love me. In pluralistic societies you can find enough people who will root for the villain because they hate the people pretending to be journalists. The best villains—Magneto—are the ones that are compelling because they are right. The media wanted to make me a villain—Darth Vader (Politico), Ghostbusters II “mood slime” (New York Times)—so I obliged them because I know that most of their audience hates them.
Fortunately the media is always starved for content in a page view world. It’s easy to give it to them. They are all on Twitter, constantly repeating, retweeting, blissfully unaware that their comparative advantage is disappearing. Most of them never leave it. By breaking news there you can force them to follow your leads. You can also deliberately lead them astray—as has happened before with the Huffington Post and the New York Times—though I certainly wouldn’t do that. (I admit, though, to celebrating whenever the media is humiliated by the trolls.) People like violating taboos. They like being naughty. Reading triggering tweets is a guilty pleasure.
Carrying more what celebrities think than what power users think ultimately turns an open protocol into a broadcasting vehicle for the well connected and thereby undermines the whole point of Twitter. Celebrities (and journalists) will always turn to Twitter because they are narcissists. The best celebrities even pay someone to tweet for them. But rarely do the celebrities mix it up. They can’t because if they do they run the risk that the public will turn on them.
The verification system is arbitrary and cruel and rewards legacy players over influential accounts. This leads to resentment, especially as young, influential people grow up on Twitter. Why do no name reporters get verification but best selling authors don’t?
It’s easy to blame liberal bias but it’s a structural problem. There’s no real barriers to entry and so there’s no real barrier to harassment. The rise of private platforms like Slack, others drive attention away.
Why should you pay to promote a tweet?
It’s not really a platform for breaking unpopular news. It’s a platform for status signaling to others. Example: I hate X therefore I am a good person and am advertising myself as such.
Therefore the Twitter user then is the advertiser already. In Facebook this relationship is explicit—and leading to a serious problem for its future. So why should a corporate advertiser pay? Why not just tweet out incendiary things to get mass attention? Why not just hire influential people to tweet about you or your product and cut out Twitter entirely? There’s no way for the company to capture value. Think Ryan Holiday—who created controversial ads to drive viral ads cheaply—on crack.
Even negative attention is attention. I would rather have the most powerful people in the world thinking of me than ignoring me. I can become a fixture and can even raise VC or rich people cash for my next venture.
Why people will even want to write stories about me.
I was often paid to tweet by consultants and others who wanted me to affect the Overton window on a policy item. It was a better return on their investment than hiring expensive public relations firms.
Twitter has been used and is being used in terrorist attacks, riots. The speed with which the information is sent out can never be censored fully.
While yours truly has been banned al-Qaeda has been busy plotting terrorist attacks on the service. Hell, ISIS has turned trolling into head rolling .
Advertising is the wrong vehicle for open protocols because there’s no limiting restrictions. Why does TV advertising work? Radio? The best shows are written and programmed so that you’ll sit through the ads, waiting. We seem to have forgotten this in our Netflix, HBOGo age where we often pay for subscriptions.
Now that everyone has TiVo there’s another serious problem going on: ads don’t get the bang they used to.
Sponsored tweets won’t really work either. Have you ever bought anything you’ve seen advertised on Twitter? What about Facebook? Did you even realize that there were ads there?
The reason print ad dollars are becoming digital fractions of a penny is that advertisers are starting to realize that there’s no scarcity. The fundamental problem is that the more popular the platform gets the LESS effective ads are because people have more tweets to see than ads.
Search is different from social. You go to Amazon or Google to buy stuff. You go to Facebook and Twitter to see friends and interesting ideas.
Even though I have been banned from Twitter there’s absolutely nothing to stop me from creating an anonymous account and building up a massive number of followers again precisely by violating Twitter’s rules.
Kowtowing to feminists and other fringe groups is killing the risky male behavior that made the internet interesting. The fundamental problem is that the more popular the platform gets the LESS effective ads are because people have more tweets to see. It’s really that simple.
Okay, here’s the material for the finance people. Note how faggy it sounds.
Why is Twitter Declining?
To understand why Twitter has declined, we need to understand what it was and how it evolved.
2010 Twitter was an incredible year for Twitter. It was the year everyone finally started using Twitter. The Arab Spring – organized largely on Twitter – made people optimistic about the potential of Twitter as a transformative force for positive change and the premier tool for collective activism.
The fact that we can divide Twitter into Twitter eras (even Twitter years) says something about digital products in general. They have shelf lives. And with the absence of significant changes that keep a product interesting and engaging, digital products slide down the end tail of their product cycle. They gradually expire and fade away. As T.S. Eliot wrote in his 1925 poem The Hollow Men, “This is the way the world ends / not with a bang, but a whimper.” Twitter is slowly receding. Twitter’s management has ceased to make it new. There have not been any significant changes in the site since it started, and maybe that’s the problem.
However, the biggest problem with Twitter is that it isn’t a product one can easily use socially with their friends. Twitter is primarily a platform for fame and public discourse, and only secondarily a platform one uses with ones friends. The problem is that the general taste for social products has shifted against Twitter. The problem, as described in the 2014 Internet Trends report presented by Mary Meeker from Kleiner Perkins Caulfield and Byers, is a shift in the social graph. Before, the primary objective of the social media user was to “broadcast fewer messages to large audiences,” a la Facebook and Twitter, but what we’ve seen in digital products is a shift in the exact opposite direction. The preferred mode of social network use has shifted to “frequent interactions with smaller groups of close contacts,” so public influence has become much less important to the consumer. We view this as an insurmountable problem that has accelerated the decline period in Twitter’s product cycle. Twitter simply isn’t in demand like it once was because the taste of the public has changed.
Timeline Views: Is Twitter Hiding a Metric that Casts It in a Bad Light?
Since going public in 2013, Twitter has disclosed two main metrics in its 10-K and 10-Q filings as a means of measuring size of its active user base and the engagement of its user base: Monthly Active Users (MAU) and Timeline Views. Twitter defines Monthly Active Users as “Twitter users who logged in or were otherwise authenticated and accessed Twitter through our website, mobile website, desktop or mobile applications, SMS or registered third-party applications or websites in the 30-day period ending on the date of measurement.” Twitter defines Timeline Views as .
Starting in 2015, Twitter’s management made the decision to stop disclosing metrics regarding its user engagement. Curiously absent from Twitter’s most recent 10-Q filing was its main user engagement metric, Timeline Views, which had been included in all its previous public filings (along with Monthly Active Users, or MAU), and had been established in its S-1 filing as management’s preferred metric for measuring user engagement. Twitter defines Timeline Views as follows:
“[Timeline Views are] the total number of timelines requested and delivered when registered users visit Twitter, refresh a home timeline (but not other timelines) or view search results while such user is logged in or is otherwise authenticated on our website, mobile website or desktop or mobile applications (excluding our TweetDeck and Mac clients, as we do not fully track this data).”
Timeline Views doesn’t merely measure product engagement. More importantly Timeline Views measures the number of times Twitter’s entire user base hits a page where they can consume advertisements paid for by vendors. Timeline Views is a great metric for tying a top level number like revenue to Twitter use on a per unit basis. In fact, Twitter routinely disclosed “Advertising Revenue Per 1K Timeline Views” in all of its filings prior to Q1 2015. In “Item 1A. Risk Factors” in its latest 10-Q, Twitter’s management reveals its rationale for omitting its only disclosed user engagement metric:
“Our measures of user growth and user engagement may differ from estimates published by third parties or from similarly-titled metrics of our competitors due to differences in methodology. If advertisers, platform partners or investors do not perceive our user metrics to be accurate representations of our user base or user engagement, or if we discover material inaccuracies in our user metrics, our reputation may be harmed and advertisers and platform partners may be less willing to allocate their budgets or resources to our products and services, which could negatively affect our business and operating results. Further, as our business develops, we may revise or cease reporting metrics if we determine that such metrics are no longer accurate or appropriate measures of our performance. For example, we stopped disclosing timeline views as we no longer believed that metric was helpful in measuring engagement on our platform. If investors, analysts or customers do not believe our reported measures of user engagement are sufficient or accurately reflect our business, we may receive negative publicity and our operating results may be harmed.”
Twitter did not disclose any metric for user engagement directly tied to revenue generation in its most recent 10-Q. This causes one to greatly question the relevance and reliability of Twitter’s filings. In omitting all user engagement metrics, Twitter’s management is effectively saying that there is no tangible way to faithfully and objectively represent user engagement to its stakeholders in a way that faithfully represents the company. This seems ridiculous. If Timeline Views does not “sufficiently and accurately reflect [Twitter’s] business,” they should introduce a new metric for user engagement, not omit certain all user engagement metrics because they could result in “negative publicity” and harm their operating results and/or stock price. Unfaithful representation is the rotten core of accounting fraud, and a publicly traded entity cannot pick and choose what they disclose as a means of optimizing their performance.
Data for historical Timeline Views is provided in “Exhibit 1, Twitter Timeline Views” on page 4. In these two charts, we provide data for the scalar Timeline Views metrics disclosed in Twitter’s S-1, 10-K, and 10-Q filings through its most recent 10-K, and also provide data describing the growth rate of Timeline Views. The decline in the growth rate of Timeline Views is most pronounced in Q3 2014 and Q4 2014, which conveniently enough is the same time period Twitter chose to start edging away from disclosing it. Since the Timeline is Twitter’s central product and means of consuming both information and revenue-generating advertisements, we are forced to ask whether this decline in the growth rate of Timeline Views signals the decline of Twitter, and the decline of Twitter’s growth period.
With regard to the concern of management that they “may receive negative publicity and our operating results may be harmed” if they were to disclose Timeline Views, the two following things could happen if they were to disclose negative growth in Timeline Views:
- Prospective and current stakeholders will be less likely to take a stake in Twitter, and analysts would reduce their forecasts for the platform.
- Potential purchasers of advertisements could recognize a decline in Twitter use, and would become less likely to purchase ads as a result, resulting in a decline in revenue.
Thus, there’s a bit of a reflexivity property and feedback loop happening with Twitter’s financials, and when Twitter’s management says they fear they will receive bad publicity and damage to their operations, they are saying that a negative growth in Timeline Views may cause analysts to downsize their Twitter forecasts and might cause vendors to think twice before purchasing ads.
This being said, with the omission of Timeline Views, the user of Twitter’s filings has no way to forecast revenue on a “per unit” basis a user engagement metric, and is now forced to do so using the Monthly Active Users (MAU) metric, which is not tied directly to revenue, as it doesn’t measure the total penetration of Twitter advertisements. Thus, we are forced to ask a few startling questions: (1) does the omission of all user engagement metrics in Twitter’s 10-Q filing constitute a material non-disclosure, (2) are stakeholders in Twitter able to make an accurate assessment of Twitter’s current position and future growth for investment purposes from its latest 10-Q filing without knowing if Twitter’s users are using the platform more/less than they were before, (3) could Twitter’s non-disclosure of all user engagement metrics constitute securities fraud? This being said, their past performance with regard to timeline views suggests that there may have been a decline in Timeline Views in Q1, which is why they chose to omit this metric from their Q1 10-Q. It could even be possible that this decline in user engagement hasn’t been fully priced into Twitter’s share price, since the market cannot know the extent of the decline in Twitter’s Timeline Views.
Twitter disclosed its intent to cease disclosing Timeline Views in its 2014 10-K, justifying it with the following rationale:
“We present and discuss timeline views in this Annual Report on Form 10-K. We have estimated a small percentage of timeline views in the three months ended September 30, 2013 to account for certain timeline views that were logged incorrectly during the quarter as a result of a product update. We believe this estimate to be reasonable, but the actual numbers could differ from our estimate. Additionally, the ongoing optimization of our products has reduced the number of times a user needs to request a timeline view. As a result, our management team believes timeline views have become an unrepresentative measure of, and will not use them internally to measure for, user engagement on our platform. As we announced on November 12, 2014, we do not intend to disclose timeline views for any future period. They are presented here only for historical purposes.”
Advertisements appear only on the Timeline of Twitter’s mobile application or browser site, and do not appear anywhere else. Financial stakeholders in the company care more about Twitter’s revenue than the use of the application itself (after all, if Twitter users aren’t viewing ads, they’re just running up Twitter’s server costs).
Could it be possible that Twitter cannot provide a metric that indicates level of user engagement and advertisement interaction? Is this some insurmountable task? Or rather, is it the case that advertisement interaction has decreased to the point of causing “bad publicity” for Twitter and that Twitter’s “operating results may be harmed” if this fact went public? Is Twitter is hiding its decline via the nondisclosure of a specific user engagement metric?
Monthly Active Users: A Juiced Metric?
Twitter defines Monthly Active Users (MAU) in 2014 10-K as follows: “Twitter users who logged in or were otherwise authenticated and accessed Twitter through our website, mobile website, desktop or mobile applications, SMS or registered third-party applications or websites in the 30-day period ending on the date of measurement.” Number of Monthly Active Users (MAU) is all we know about Twitter’s user base or user engagement from their most recent 10-Q filing. From what they have disclosed (presented in Exhibit 2), we can tell that Twitter’s user growth is in huge decline. YOY growth rates in MAU have slumped to around 20% per year, and this number largely includes non-human users who cannot generate revenue for Twitter.
Ever since it went public, Twitter has been plagued by concerns about its slowing user growth. Facing mounting pressure from investors, who sent shares of Twitter tumbling when its disappointing earnings were accidentally released before markets closed, the company today said it will change the way it calculates its monthly active users (MAUs). The change, of course, will mean that Twitter will suddenly have 6.4 million additional users. Twitter now has 302 million MAUs, up 18% from the first quarter last year. But the figure would be 6.4 million higher if the company counted what it calls “SMS Fast Followers,” or people who sign up and access Twitter entirely using text messages. It wasn’t immediately clear what these users would need to do to be considered active over time.
In the coming quarters, Twitter said it will include these people among its MAUs. Looking at the last five quarters, the inclusion of SMS Fast Followers would have increased Twitter’s monthly active user count by 1% to 2% each quarter. The change to how it calculates this metric could set up Twitter for disappointment. Based on the demographics of these users—largely people who live in developing countries and own feature phones—Twitter will have a hard time making money from them. Furthermore, many of Twitter’s ad products, such as cards and app install ads don’t translate to text messages. Simply put, the MAU number doesn’t represent Twitter’s ability to earn money as faithfully as they’d like stakeholders to believe it does. This is a big cause for concern, given that users of financial statements have no way to really know how big Twitter’s user base is and how exactly it operates.
And Twitter has been trying to convince investors to focus on other metrics, like how many see tweets regardless of whether they are logged in, so this move could serve to undercut that argument. But the company believes that building a relationship with these folks now will ultimately benefit its bottom line. Chief financial officer Anthony Noto said SMS Fast Followers are “relatively sophisticated,” because they interact with a more technical interface compared with Twitter on smartphones and desktops. And though their revenue potential is low now, Twitter’s betting on their upward mobility. “In terms of the long term, we would hope these SMS Fast Followers will graduate to smartphone and desktop usage,” said Noto. “As they do that, the magnitude of their usage will increase and our ability to monetize them, that will increase. But today, the monetization rate of SMS Fast Followers is going to be meaningfully lower than the monetization rate of [our current] users.” So why are they putting it in the same bucket as MAU? This makes little sense. With the elimination of Timeline Views as a method of tracking and forecasting Twitter’s monetization efforts, users have no meaningful metric to tie revenue to.
Twitter’s user base isn’t as large it may purport to be due to another reason: bots. Investors have decided, for better or worse, that MAU is a good measure of Twitter’s growth. The stock jumped more than 20% after the company reported it had 271 million monthly active users (MAUs) at the end of June, an increase of 6.3% from the previous quarter and more than most analysts were expecting, and plummeted by 18.2% when Q1 2015 earnings were announced and prospects for Twitter’s growth had stalled.
Is MAU a good metric for measuring the number of users on Twitter? But, really, it depends on how you define “user.” Here are some examples of what passes for an active user on Twitter. Included among Twitter’s active users are plenty of accounts representing brands and other non-humans, from Coca-Cola to Grumpy Cat. On one hand, it makes perfect sense to include these accounts as active users: A cat with a million followers is an important part of what makes Twitter so great. Many of these accounts have real-life humans behind them. Is a brand any less of a Twitter user?
Well, in some crucial respects, yes. If MAUs are used to judge Twitter’s growth—how broadly the company has spread to people across the globe—then accounts representing brands and other non-humans seem beside the point. And they are nearly irrelevant to advertisers, who are generally interested in reaching people, not other brands. Most importantly, including brand accounts among MAUs leads to lots of double-counting of actual people.
It’s impossible to say what portion of Twitter’s active users aren’t human, and in fairness to Twitter, estimating that would be very difficult. But a glance at most Twitter feeds suggests it’s a large portion, indeed. That makes it fallacious to compare Twitter’s MAUs to Facebook, which only allows human accounts. On Facebook, brands must use “pages,” which aren’t considered separate users. A related issue is automated accounts. Buried in Twitter’s quarterly earnings reports, the company discloses what percentage of its MAUs “used applications that have the capability to automatically contact our servers for regular updates.” Translation: how many active accounts access Twitter outside of the official website and mobile apps, using Twitter’s API.
That includes lots of accounts that read or send tweets with apps Twitter doesn’t own. Those are legitimate accounts, probably more active than a typical user. But this category also includes accounts that are totally automated. These accounts can be very useful—sending alerts earthquakes, news reports, or anonymous Wikipedia edits—but they can hardly be considered human. They are bots. Twitter doesn’t get ad revenue from these guys, and they will not buy a product online.
When Twitter was preparing to go public last year, 7% of its active users used the API. The company also said (p. 49) it expected that percentage to “decline over time, particularly as usage of our mobile applications increases.” But actually, the portion of Twitter’s MAUs using the API has doubled, to 14%. That segment of users is growing much faster than MAUs that don’t use Twitter’s API. Those now represent 37.9 million active accounts, up 148% in the past year. If you remove these API accounts from Twitter’s results, which isn’t entirely fair, last quarter’s MAU growth was only 3.9% over the previous quarter, instead of 6.3%. Again, using Twitter’s API doesn’t necessarily make an account a bot. And bots are totally different from spam, which Twitter estimates to represent under 5% of its accounts. But the explosion in this category of user should raise eyebrows, particularly after Twitter predicted the opposite would happen.
It stands to reason that the enormous growth in these types of accounts isn’t coming from humans integrating their accounts with other services, especially as Twitter has clamped down on third-party apps using its API. For what it’s worth, RBC analyst Mark Mahaney disagrees. In a note after Twitter’s quarterly earnings this week, he wrote:
“Our interpretation is that this implies that a growing number of users are using apps to refresh/access with Twitter content. These Users are making more of an effort to engage with Twitter. That’s actually a good thing.”
BTIG analyst Rich Greenfield interpreted this data less charitably. Even if these accounts are humans, he wrote, “Off-Twitter activity is important to understand as those MAUs are not currently being monetized.” That is, advertising sold by Twitter, which is growing strongly, doesn’t reach accounts using the API—for instance, on Flipboard or Tweetbot. That’s the chief reason Twitter started restricting usage of its API in the first place.
So how many people are out there? Ultimately it’s not possible to estimate how many of Twitter’s monthly active users are actually human. But it’s fewer than 271 million, and there’s reason to suspect that recent growth has included lots of accounts that don’t have a pulse.
One lesson here is that MAUs aren’t a good way to measure Twitter. The company has begun arguing that it should be judged by how many people encounter tweets on the rest of the web and even television, and it may start reporting data along those lines. It also has an existing metric—timeline views—that serves as a better measure of actual use of Twitter by humans. That figure is up 15% over the past year, compared to 24% growth in MAUs.
Even better would be if Twitter disclosed how much time people spend with the service. Facebook recently disclosed that its average user in the US spends 40 minutes a day there. That’s a mind-blowing statistic against which all other companies that sell advertising should be measured. But for now, they report nearly nothing regarding their user base, and this could possibly be interpreted as a material omission of information. As a takeaway, one must ask oneself if anyone can truly know what’s going on at Twitter from Twitter’s financials, or if the company’s position is being obfuscated via the omission of material and relevant information regarding its user activity.
We find a number of non-negligible contingencies standing in between Twitter and the high expectations the market currently has for Twitter. There are big questions about the faithfulness of Twitter’s financial reporting, questions about its ability to regulate its platform, questions about whether advertising is a viable revenue model, and questions regarding the accountability and efficacy of its management. Each of these questions – supported by cold hard fact – present Twitter as a potential short opportunity. If even one of these (let alone more than one of these questions) turned to be true, the value of Twitter as a going concern would grossly decline. So we are here to ask a question: does the market price these key contingencies into Twitter’s stock price yet, or is Twitter the big short of the 2015 tech bubble?
 Nick Bilton, Hatching Twitter: A True Story of Money, Power, Friendship, and Betrayal, p. 107.
 Twitter, Inc. March 2, 2015. Form 10-K. http://www.sec.gov/Archives/edgar/data/1418091/000156459015001159/twtr-10k_20141231.htm. Accessed June 2015, pp. 46.
 As an aside, let’s consider what very broad principles a financial statement prepared under GAAP must adhere to, as governed by SFAC No. 2. At the core of “what a financial statement should be” we find relevance and reliability. With regard to relevance, GAAP says the following: “relevant accounting information is capable of making a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations. Information can make a difference to decisions by improving decision makers’ capacities to predict or by providing feedback on earlier expectations.” Does Timeline Views constitute relevant information? Is the inclusion of a representative user engagement metric necessary for a user of Twitter’s financial statements to arrive at a rational decision? We posit that a user engagement metric is a relevant and material piece of information that has been omitted by Twitter’s management in bad faith.
 Twitter, Inc., March 2, 2015 Form 10-K, http://www.sec.gov/Archives/edgar/data/1418091/000156459015001159/twtr-10k_20141231.htm, accessed June 2015, pp. 14, ¶ 5.