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After all the controversy that Facebook has sparked over the past few months, it seemed almost inevitable that at some point the social media giant would have what it had to offer. A calculation. Wednesday's disappointing earnings report and Thursday's 19% historical stock dip appeared to be a fitting conclusion to an easy story.
Read: How the Facebook $ 151bn rout could rewrite the history books
But the story is not so simple. Yes, the privacy protections that the company has put in place after a series of scandals have played a role in dismal revenues. But the biggest problem of the company is that the main social network – the invention that made it a giant of the business – just can not grow much more. And the new Facebook dollars over the next few years will have to come from less secure companies, like ads in chat apps, virtual reality, TV-like video content and social media updates that disappear.
focused on advertising in his news feed. People come on the social network, scroll through and see advertisements between their friends' baby pictures and news links. Whenever Facebook needed to earn more money, it was only speeding up the frequency of advertisements, or mugging more and more people around the world to sign up for Facebook.
But there are now 2.23 billion people using Facebook. That's two-thirds of the Internet-connected population in the world. It's about the same size as Christianity. Who else than the company can register?
This does not help that some people who use Facebook are angry at the company for its various breaches of data privacy and content moderation. Social network user growth in the second quarter was the slowest ever, and stable in North America. He lost some users in Europe. Meanwhile, he has stopped cramming more ads into the news feed. Too many ads, and people will be rejected. The only place where Facebook can replicate its proven business model is its Instagram photo sharing app, which also has some sort of news feed. The rest is still an experience.
Another of the fastest growing Internet businesses, Netflix Inc., has given investors a fear that the race will come to an end. The owner of the largest online pay-TV network in the world has announced slower growth in subscribers in the second quarter and the company's shares have fallen nearly 10% since last week.
Like Facebook, investors will have to decide term blip, or a sign of a long-term problem. Netflix has just released its best year of adding subscribers, but growth at home has slowed.
The transition to new revenue lines has not had to be as dramatic for Facebook. The company acquired WhatsApp for $ 22 billion in 2014 and created its own chat application, Messenger, the same year. For years, he told Wall Street that he was just waiting for the right time to make money on these properties.
Managing Director Mark Zuckerberg said that the company could afford to be patient until these applications reach 1 billion users. Now they are far beyond this level, but Zuckerberg says that the company is still experimenting with potential business models. All this puts pressure on Facebook, because all these new initiatives "frankly are not important enough in the short and medium term to change growth decelerates," writes Eric Sheridan, an badyst at UBS, in an investor note. Investors must decide for how long Facebook will have the benefit of the doubt.
The road to new business models involves something else that investors hate: narrower margins. Many of the ways in which Facebook will make money in the future are more expensive, which reduces profitability. Making virtual reality headsets involves making hardware and, in some cases, selling it at a loss to attract customers to a new product. Making a new type of Internet TV has already cost Facebook hundreds of millions of dollars in content offers. And in the long run, Facebook plans to share advertising revenue with content creators.
There is also the cost of cleaning Facebook's problems. The company hires thousands of people to work on investigative matters with fake news and foreign interference in national elections. And he invests in expensive engineers to build an artificial intelligence that can streamline this work in the future. "In the light of increased investment in security, we could choose to reduce our investments in new products," Zuckerberg said Wednesday. call with investors. "But we will not do it because it would not be the right way to serve our community and because we are managing this society for the long term, not for the next quarter." Operating margins will grow in the range of 30%, "said Facebook, compared to more than 40% of investors were used to it.
Facebook also said that the company's business figure was going to be affected in part because it gives users more control over their privacy settings. Its advertising engine relies on user data to accurately target people who might interest them. The company is introducing stricter user controls in the light of the European Data Protection Regulation, which came into effect during the quarter. But this is not the most important factor. Zuckerberg said that the vast majority of users did not take Facebook on its offer to use less of their data.
Facebook is known for its obsession with growth at any cost. But maybe he was too good at what he undertook to do. Now that he has reached a saturation point in the world, he is struggling to cope with the responsibility that comes with such a size, and also with the prospects of his future. Brian Wieser, an badyst at Pivotal Research, said, "The company has not managed to grow as well as most of us have thought," Wieser said. written
© 2018 Bloomberg LP
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