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NEW YORK (CNN) – For months, Facebook and Twitter investors have ignored concerns about election interference, regulatory scrutiny and the awakening of life privately by the whole of the industry. The only thing that mattered was that both platforms were getting more people for their ads, which brought in more money.
Facebook shares reached historic highs despite the attack of the bad press that followed the Cambridge Data Analytica scandal. And Twitter has almost doubled its value this year due to the enthusiasm for restructuring its business.
Lee: Twitter plunges into Wall Street
All this changed this week. Facebook and Twitter dropped by 20% or more in a few hours after both companies released their results. The reports have raised concerns about how quickly these companies can continue to grow in a context of increasing surveillance and stagnant user numbers.
Facebook, which has long defied gravity with consistently strong sales growth, warned shareholders Wednesday that these days could be down. Now he expects sales growth to decline significantly as he invests in "putting privacy first."
Also, Twitter said Friday that it lost a million monthly users in the second quarter as it was working to clean up the network. and comply with the new privacy rules of the European Union. The company warned shareholders that it could lose millions of additional users during the quarter as it continues to "invest heavily" in the platform's health.
"Twitter and Facebook had to change their business models to a certain extent. Daniel Ives, an badyst at GBH Insights, told CNNMoney:
They are investing more in security, adapting their data collection practices to comply with the new, far-reaching privacy regulations in Europe. Instead of just focusing on generating advertising dollars.
But adapting an advertising-based business model to the strictest privacy standards is only part of the problem. Both companies are reaching a ceiling on user growth. Facebook now has 2,230 million monthly users, while Twitter has 335 million.
Read: Facebook has the greatest loss in the history of Wall Street
Facebook has almost reached the maximum of 39 audience on its most established markets, including Europe, the United States and Canada. At the same time, he is reconsidering the basic experience of the application for these users by focusing on Stories, a popular format launched by Snapchat, which is a source of money less clear that the news thread or the news feed.
That's if it will be monetized at the same speed as the news feed, "said Sheryl Sandberg, director of Facebook operations, on the move to Stories, in a conference call with badysts this week. "And honestly, we do not know."
Uncertainty was an impact on the Wall Street system. "Facebook was a growth machine.He was a child of Wall Street gold," said Ives.
The fall in the number of Twitter users has renewed old concerns that their audience will stagnate forever around the 300 million mark.This could cast doubt on Twitter's ability to attract more advertising dollars and potentially weaken the history of its restructuring.
] Read: Investors must lose fear: Facebook will recover
"Twitter has openly stated that investors should expect users to decline," said Michael Pachter, badyst at Wedbush. "This seems a lack of growth." Investors will not appreciate this news.
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