Is Facebook Lying About 900 Million Users?

NEW YORK (TheStreet) -- I am ceaselessly amazed to witness the level of desperation among some investors when they want nothing more at that particular moment than to be right -- regardless of how ridiculous the claim may be. When it comes to certain companies, I'm realizing that investors these days care very little about exposing their increased levels of emotional attachment. At one point this was a cardinal sin on Wall Street.

However today there is a new breed of investor who wears tickers as badges of honor. In the process, these folks have allowed feelings to cloud their judgment by presenting arguments that not only suggest they are wrong, but demonstrate their commitment toward excluding logic from the discussion. My article on Monday regarding social media giant Facebook (FB) and investors' appetite for revenge stirred a bit of controversy regarding the company's credibility -- specifically questioning the authenticity of its 900 million users.

However, it seems that these are the same people that failed to raise these questions prior to the IPO. Now after getting burned, somehow it is time for due diligence. A reader named "Walrus007" offered this:

I seriously doubt 900 million "people" are using face book. It just doesn't pass the common sense test. I wish the media would stop spreading and ignoring this deception. I repeatedly see blogs from people claiming multiple FB accounts, often up to 50. There are 7B people on earth. For starters, FB is banned or unavailable in many countries including giants like China. I have been to 21 countries and I can tell you that in many countries huge percentages of people are just not on the net at all, and a huge percentage of the world has little or no money to funnel into FB pockets anyway.
I do not believe FB has 900m customers. I also believe they are close to market saturation with all kinds of competitors snapping at their heels. FB will morph into yet another tool for big business to sell you stuff, if it hasn't happened already.

First it's hard to not agree with Walrus007 to some extent because Facebook has recently admitted in SEC documents released prior to its IPO that its user base numbers hold an estimated 5% to 6% of false or duplicate accounts. How accurate that figure is remains to be seen. However, all it means is that instead of 900 million active users, it may (only) have 845 million to 855 million that are real.

Let's assume a more bearish number of 15% unqualified accounts exist, that means the company has (only) 765 million in active users. Is that really that much of a difference?

We could reasonably ask, is Facebook doing enough and does it have sufficient information to report only the accounts that it knows to be legitimate, such as 845 million as opposed to 900 million?

To fully understand how Facebook addresses these concerns one only needs to attempt to create an account of their own -- an exercise which I undertook for the first time recently. What I've noticed is that during the signup process, the company first takes you to what it calls a statement of rights and responsibilities where it states that "Facebook users provide their real names and information, and we need your help to keep it that way" -- information that includes age requirements (13), agreeing not to create duplicate accounts, and not being a convicted sex offender.

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