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Twitter Faces Controversy Over 48M Bots on its Platform

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Twitter Inc. (TWTR - Free Report) finds itself in the middle of another raging controversy. Per a Sunday Times report, citing research conducted by University of Southern California and Indiana University,  15% or 48 million of Twitter’s accounts are bots or fake accounts. In fact, it is double Twitter’s own estimate of bots (8.5%) on its platform. 

This is concerning for investors, especially as Twitter has only a little over 319 million users. The company has been a social phenomenon but somehow has failed to leverage that status to boost user base. In fact, Snapchat and Instagram, which are relatively new in the social media circuit, have amassed more followers than Twitter. Undoubtedly, Facebook (FB - Free Report) , with nearly 1.9 billion users, remains the biggest social media service.

Investors have been on the edge for some time now and one can hardly blame them. Sluggish user growth, declining revenue growth rate, profitability issues, exodus of top level employees and the trolling menace have caused bloodbath on the trading front.

With the bots controversy, it is likely that Twitter will find it difficult to lure more advertisers to its platform. Ad revenues, which comprise a major share of the company’s total revenues, were down nearly 0.5% year over year in the last reported quarter. Given all these developments, over the past one year, shares have been down 10.60% compared with 8.05% growth in the Zacks categorized Internet Services’ industry. 

Second time CEO Jack Dorsey, reinstated in Oct 2015, has been working on turning around Twitter’s fortunes. However, despite his widely cheered reappointment, he has not been able to achieve much.

Focus on live and user friendly changes to the platform, though headed in the right direction, have not yet yielded the desired results.  Interestingly, Dorsey serves as CEO of both Twitter and Square Inc -- something that has always been controversial, since both companies remain at critical junctures. The latest controversy might be enough to put pressure on Dorsey to quit his role at Twitter.

At present, Twitter carries a Zacks Rank #3 (Hold).

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