Why Facebook’s Fake Users Are Going To Be a Real Problem

Advertisement

FB stock - Why Facebook’s Fake Users Are Going To Be a Real Problem

Source: Shutterstock

I’ve had long conversations with a journalist friend who has been in the business forever. He knows what readership and circulation is at most of the major newspapers. He’s on the inside at some large publications. He has long insisted that the traffic reported by websites and by companies like Twitter Inc (NYSE:TWTR) and Facebook Inc (NASDAQ:FB) isn’t just overstated, it is wildly overstated.

I agree. And you should invest very cautiously in FB stock and others that rely on these types of metrics. I believe we will have a reckoning where we learn fake traffic is much, much higher than anyone even knows. Consequently, FB stock will tank.

If you watched Homeland on Showtime this year, one of the subplots involved a “click farms” — a secret operation used to create fake social media accounts in order to manipulate public opinion. These farms are real. So are “bot farms.”

One reporter spent two years botting for Instagram. His findings are devastation. Moreover, management at FB and social media companies know all about it. So why don’t they do something about it? Here’s what he says:

“For one thing, Instagram is killing it right now. Every time Facebook reports their financial earnings, they need to show robust growth in their flagship products; almost just as importantly, they need to show healthy engagement. Growth and engagement are the life forces of Facebook’s stock, and any decrease in either can send shares south … If we take into account the massive number of people botting everyday all around the world, the number of likes and comments are astronomical. It’s very unlikely that this huge engagement engine will ever be shut down by Facebook Inc.”

There are tons of software programs that even make it easy to do this. The NY Times calls it a “pyramid scheme” — people paying to generate fake friends. There’s plenty of incentive for individuals to do this, because the more followers or friends one has, the more one can charge to promote a product. According to the Times:

“This is where the real money is exchanged. Consider, for example, that a celebrity like Kim Kardashian, who has 57 million Twitter followers, has been paid $10,000 to tweet about ShoeDazzle. Or that Charlie Sheen, who has 12 million followers, was reportedly paid $50,000 to tweet about internships.com.”

If you happen to be curious about how many fake followers anyone has, including yourself, certain software like Fake Follower Check. Speaking of publications, the NY Times itself has 12% fake accounts, 62% inactive, and only 26% that the software considers “good.”

But to stay on point, according to that software, Twitter says that of Facebook’s 14 million followers, only 35% are “good.” Twitter itself supposedly has 62 million followers, but apparently only 30% of them “good.”

FB Stock and Fake Users

Which takes us to the actual number of monthly users at FB and TWTR. FB stock had terrific earnings recently. Buried in the FB stock earnings release is that it thinks 3% of its user base is fake. That’s up from 2%. Duplicate accounts are 10%, up from 6%. That means almost 270 million accounts are fraudulent.

So, Facebook reports that there are over 2.07 billion monthly active users on FB, and 1.15 billion mobile daily active users.

No way.

I said recently that in order for there to be 2 billion monthly active users, it would mean that 40% of the world’s accessible population uses FB monthly on an active basis and that 25% of that population uses FB daily.

That is utterly unbelievable to me. We aren’t talking millions of people. We are talking billions.

Billions.

One wonders, when the truth comes out, how many of those billions will be wiped off FB stock market cap?

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.

 


Article printed from InvestorPlace Media, https://investorplace.com/2017/11/facebook-fb-stock-fake-users-real-problem/.

©2024 InvestorPlace Media, LLC