This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

It's Not Enron, It's Facebook

Stocks in this article: FB

NEW YORK ( TheStreet) - The phrase "When it rains it pours" seems to be the prevailing theme these days when discussing the current plight of social media giant Facebook (FB).

As the stock continues to plummet from what was a $38 egregiously overhyped IPO price to where it sits under $20, investors have started to wonder if the company is the "house of cards" that Enron was discovered to be. Enron ultimately went to zero. Where is Facebook heading?

One of the things that has made Wall Street seem a scary place is that corporations have become highly skilled at pretending to be something they are not. It goes without saying that there is no better example of this than Enron, but is it fair to place Facebook in this category? Some investors have already taking it to Twitter and in the comments section of several articles. But is it fair?

As far as the comparisons are concerned, for Facebook, not only is it in a continuous cycle of defending the fundamentals of its business, but there are now growing concerns about the legitimacy of its 955 million user base. Investors want to know if they are real or if the company has been lying.

As Enron brought more scrutiny to corporate disclosures, Facebook is now feeling the effect of the need to prove its foundation is not only stable but extremely transparent. As a way to appease the recent breed of investors filled with pessimism and mistrust, the company has made some acknowledgements regarding its reported users.

In a recent SEC filing Facebook has admitted that as of June 30 approximately 8.7% of its 955 million accounts worldwide are, in fact, duplicates or have erroneously been created -- essentially 83 million of them. In its recent filing the company revealed the following:

We estimate that "duplicate" accounts (an account that a user maintains in addition to his or her principal account) may have represented approximately 4.8% of our worldwide MAUs as of June 30, 2012.

As of June 30, 2012, we estimate user-misclassified accounts may have represented approximately 2.4% of our worldwide MAUs (monthly active users) and undesirable accounts may have represented approximately 1.5% of our worldwide MAUs.

We believe 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.

However, 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 to the reviewers.  As such, our estimation of duplicate or false accounts may not accurately represent the actual number of such accounts.

First, Facebook deserves a considerable amount of credit for its acknowledgement of its user base discrepancy. This suggests that it is nothing like Enron. What's more, the company has waged an unrelenting commitment to improving its ability to spot these false user accounts and put corrective actions in place.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,614.81 +215.14 1.31%
S&P 500 1,941.28 +37.27 1.96%
NASDAQ 4,419.4780 +103.4040 2.40%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs