"We discovered that since the fourth quarter of 2014 we had included users of certain third-party applications as Twitter MAUs that should not have been considered MAUs".
Twitter said that in past estimates it had wrongly counted people who logged into applications associated with the company's Fabric software platform, which Twitter sold this year to Alphabet Inc's Google.
While revenue declined during the quarter, Twitter produced a positive GAAP (generally accepted accounting principles) operating profit for the first time in its history, and it sees the possibility of GAAP net profitability in the fourth quarter.
The social site admitted it had botched its monthly active user count for the past three years, overstating its numbers by more than one million users in the past few quarters.
Twitter said it may be profitable in the upcoming fourth quarter, for the first time in its four years as a publicly traded company.
Twitter said it signed a "significant number" of enterprise deals in the third quarter, which would help stabilise its revenue flow.
Twitter last month released full-year earnings covering its United Kingdom operations, which showed a slight rise in turnover from £76 million to £79 million in the year to December 31 2016, according to accounts filed at Companies House. I've argued that Twitter can indeed survive, as long as it ramps down growth investments while investors simultaneously lower their own expectations.
These results are a much-needed improvement over Twitter's dismal performance last quarter, when it didn't add any new users. A big part of the company's improving financial condition is due to coming to terms with what Twitter is - and, more importantly - what it isn't.
The social media giant said adjusted operating profit rose to 207 million USA dollars (£157 million) in the third quarter, compared with 181 million dollars (£137 million) during same period previous year.
Twitter has also been working to better curb abuse and harassment, though with mixed results.
While the counting error could damage Twitter's fragile reputation, it didn't appear to have an immediate impact on investors, as its stock rose 12 percent on Thursday morning.
Twitter Chief Executive Jack Dorsey said on a conference call that the company was trying out ways to attract and engage more users.
Twitter recently announced that it will give users more power to report unwanted sexual advances.