Facebook shares slump following fake user confession

Social networking giant Facebook has seen its share price tumble after revealing that around 83 million of the site's profiles are fake.

The firm made the disclosure in a 10-Q financial document, filed with the US Securities and Exchange Commission, following the publication of its second quarter results last week.

The document states that, as of 30 June, the site had 955 million monthly active users (MAUs), but 4.8 per cent of these may possess one or more Facebook accounts.

The percentage of accounts that are duplicate or false is meaningfully lower in developed markets.

The company said around 2.4 per cent of its MAUs are "user-misclassified accounts", whereby people have created personal profiles for a company or their pets, which should be listed as Pages instead.

A further 1.5 per cent have been designated "undesirable accounts", which are usually set up by spammers.

"The percentage of accounts that are duplicate or false is meaningfully lower in developed markets such as the United States or Australia and higher in developing markets such as Indonesia and Turkey," said Facebook.

In all three cases, users with multiple, misclassified or undesirable accounts are violating Facebook's terms and conditions.

However, the document also suggested, because its user calculations are based on a "limited sample of accounts", there is a risk the number of fake users its counted may not be completely accurate.

"These estimates are based on an internal review of a limited sample of accounts and we apply significant judgment in making this determination, such as identifying names that appear to be fake or other behavior that appears inauthentic," explained the company.

"As such, our estimation of duplicate or false accounts may not accurately represent the actual number of such accounts...and such estimates may be affected by improvements or changes in our methodology."

The company's "fake account" disclosure resulted in Facebook's share price hitting an all-time low of $19.82 a share at market close yesterday, but it has since rebounded to $20.04 this morning.

"Our financial performance has been and will continue to be significantly determined by our success in adding, retaining, and engaging active users," the company's Q2 SEC filing added.

Simon Ellson, internet security expert at anti-virus software vendor Norton, said reports about fake social networking site profiles should serve as a wake-up call to users.

"Unless your privacy settings are on high, social media networks and profiles are public arenas and can be viewed by anyone. With so many fakes out there, it's important to think before you post," said Ellson.