Commentary

What's The Matter With Facebook?

In the wake of Facebook’s week from hell, folks are worried about what’s next for the company.

And, perhaps rightly so. From the first quarter of the year to the second, revenue growth dipped by about 7%, while Facebook said it expected similar declines in the third and fourth quarters.

Comparing 2017 to 2018, the tech titan said it expects total expenses to grow by as much as 60%. This trend could result in lower operating margins (of approximately 35%) over the next several years, warned Dave Wehner, Facebook’s CFO.

In response, investors gave Facebook a beating of record-setting proportions. In one day, the company’s value fell by nearly $120 billion. Some shareholders even called for Mark Zuckerberg’s ouster, or at least the relinquishing of his dual roles as chairman and CEO.

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Did Wall Street overreact?

One could make that argument. Like all mature businesses, we already knew Facebook’s growth was slowing. That the fallout from the Cambridge Analytica scandal and subsequent missteps seem to be accelerating this trend is a concern -- but it’s not an unexpected one.

Facebook’s growing expenses should have come as less of a surprise. The company made clear its intention to commit significant resources to sidelining spreaders of misinformation, bullies and other bad actors. Sources recently told The Wall Street Journal that Facebook is now spending hundreds of millions of dollars on human content reviewers alone.

Zuckerberg has also made it known that he’s willing to sacrifice short-term gains in order to give users a better experience.

“By focusing on meaningful connections, our community and business will be stronger over the long term,” Zuckerberg said earlier this year. In the interim, however, he warned that the strategy would “significantly impact our profitability.”

Still, Facebook’s family of products remain the envy of Silicon Valley.

Having recently surpassed 1 billion monthly active users, Instagram alone is worth more than $100 billion, according to a recent appraisal by Bloomberg.  “Instagram represents a very healthy part of [Facebook’s overall] growth, and we expect that to continue,” Sheryl Sandberg, Facebook’s COO, said last week.

Messenger boasts about 1.3 billion monthly active users, and the service is ripe for monetization, she noted. “We’re being very slow and deliberate with monetization,” said Sandberg. “It’s still in early days.”

Not surprisingly, this is where Facebook wants investors to focus: the size and strength of its product group.

That’s why the company just unveiled a new “family” metric, which measures monthly visits across its network of properties, according to Lynnette Luna, principal analyst at GlobalData.

Worldwide, Facebook says about 2.5 billion consumers used one of its platforms in June, per the new metric.

“This is an important shift because the metric counts individuals rather than active accounts, since users can have multiple accounts on a single app,” Luna said last week. “Expect to see a bigger emphasis on growth of Facebook’s family of platforms rather than Facebook proper.”

“Monetization of Instagram, WhatsApp and Messenger is still largely in its infancy as Facebook finds new ways to effectively serve ads on them and engage businesses,” Luna added. “The key for Facebook is to move the needle on those initiatives as growth on Facebook proper stagnates further.”

3 comments about "What's The Matter With Facebook?".
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  1. Douglas Ferguson from College of Charleston, August 1, 2018 at 10:30 a.m.

    I often wonder if the 2016 election outcome is to blame. Zuckerberg would probably be just fine had the expected winner not stumbled.

  2. Paula Lynn from Who Else Unlimited, August 1, 2018 at 11:38 a.m.

    Campaign: Do NOT click on any ad or read news or watch a video from strangers (people who will not show up when you desperately need them to drive to the hospital, etc. at 3 am). Period.

  3. Craig Mcdaniel from Sweepstakes Today LLC replied, August 1, 2018 at 4:08 p.m.

    In the beginning, FB started as a one stop shop for conversation. You could talk about any subject with everyone. That model is slowiy showing that it can have it's drawbacks. For example, political discussion is proving to be a major pain to control and managed when mixed in with day to day chat. Something needs to change in this regards. Maybe FB should create different page sections for politics, sports, entertainment and other categories. The thing I have learned with my website after 15 years is our membership doesn't want anything other than sweepstakes. They will quit if that changed. That's my experience and advice to Facebook.

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