Twitter says it overstated user numbers for three years

Last Updated Oct 26, 2017 5:18 PM EDT

Twitter's (TWTR) user base wasn't quite as big as it tweeted about in past years. 

The social media network said it overstated its number of monthly users since 2014, blaming third-party applications that sent authentication messages via texts through Twitter's systems, but which weren't related to activity on its platform. The company restated the number of monthly active users for three quarters, shaving them by between 1 million to 2 million users. 

Investors shook off the disclosure, sending Twitter shares higher in early trading. The company also reported third-quarter results that exceeded analysts' expectations. The social media network also said it expects to achieve profitability in the fourth quarter. The stock rose $2.50, or 14.6 percent, to $19.64 on Thursday morning.

The issue may add to credibility problems for Twitter, which has been under pressure to weed out fake accounts and bots. As much as 15 percent of Twitter's user base may be bots, or programs that mimic human behavior but are designed to push an idea or product, according to research from University of Southern California and Indiana University. Twitter's advertising customers, though, want to reach real people, not bots. 

It could also deepen investors' concerns about Twitter's growth. "We see little progress towards attracting new users, which we believe is essential in order to generate advertiser demand going forward," said Wedbush Securities analyst Michael Pachter in a note.

Twitter said it had 326 million monthly active users in the second quarter, not the 328 million it had previously reported. First- and fourth-quarter monthly active users were also trimmed by 1 to 2 million. The company said it doesn't have the data to reconcile periods before the fourth quarter, but believes the overstatement is smaller. 

The company said it lost $21.1 million, or 3 cents a share, in the third quarter. Sales declined 4 percent to $589.6 million. Twitter also said it expects to turn a profit in the fourth quarter. 

Earlier this week, Twitter said it will create a so-called transparency center, which will include details on political ads. The service will require ads that refer to a candidate or party to be clearly identified as election ads, it said.