Facebook has Social Problems
Facebook recently reported earnings, and the results were worrisome in all aspects, with regards to the present and future. Not only did the company fail to meet revenue and daily active user (DAU) expectations, it also forecasts considerable decline in revenue growth through the coming quarters, cautioned by CFO David Wehner. This is justifiable since Facebook reported its slowest user growth rate ever for the quarter. As a social media platform dependent on advertisements, Facebook mandates a growing user base to remain the best site for advertising; decline in growth would concurrently slow revenue gains as competitors such as Twitter and Snapchat might gain more ground. However, Facebook attempted to belittle these pessimistic views with an optimistic statement that 2.5 billion people use at least one of the company's apps, which extend to Instagram and WhatsApp. While Instagram confidently can foresee growth in the future, especially after its introduction of IGTV, Facebook is the primary platform with its carrying reputation and revenues.
What could have contributed to the decline in revenue growth and the slowing of daily active users? While global DAU rates increased by 11% year over year, DAUs in Europe recorded a decline from the previous quarter, most probably as a result of the declaration of the GDPR (General Data Protection Regulation) across the EU. This policy primarily makes privacy more transparent as consumers will better understand how and when their data is being used. Likewise, businesses that manage these data will have to attain consent from the consumers when utilizing their data and detailing how it will be used. This, along with the Cambridge Analytica scandal, placed Facebook in a predicament as several people and institutions were losing trust in the company. As a result, it was forced to change its privacy policies and make clearer statements to users regarding its advertising procedures while also passing more regulations on the types of ads to combat Fake News and violent content. This could potentially discourage advertising as targeting people becomes more difficult, threatening advertisers and consequently Facebook's revenue.
So how could Facebook tackle its revenue decline difficulties? The best method could be to monetize its other apps, namely Messenger and WhatsApp. As of now, both of these popular mobile apps have no ads on their platforms but are consistently seeing growth in users and thus serve as viable opportunities. Currently, Facebook neglects to monetize them as it hopes to gain a larger user base and then eventually begin advertising. In fact, Facebook COO Sheryl Sandberg expressed interest in click-to-messenger ads, similar to those on Facebook News Feed and Instagram Feed. This only suggests that Messenger and WhatsApp may become monetized in the future, which surely will support the company while it experiences a revenue decline from Facebook.
Facebook's disastrous earnings could be a reminder and caution to the current growth in tech. For years, technology companies have rapidly been growing, unaffected by the possible complications of a trade war or major scandals and outbreaks. But their growth may see a temporary slowdown. Market saturation is undeniable, and growth can not continue at the same rate as the companies grow larger. Netflix similarly failed to meets its expectations during earnings due to a slower subscriber gain. Amazon and Apple are soon to report, but it is quite probable that the currently high expectations in the fast-growing tech industry may overwhelm the actual earnings reports. And a large technology company missing results can significantly damage the company's valuation, demonstrated by Facebook's 20% drop post-earnings, erasing $120B. The bubble is ready to pop.
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