Facebook growth slows in aftermath of privacy scandalsJuly 26, 2018
For years, Facebook has enjoyed astronomical growth, but that’s starting to slow as the company’s moderation controversies and data privacy scandals continue to pile up. Facebook posted earnings for the second quarter of 2018 today, with revenue and user growth coming in under Wall Street estimates. It’s the first time the company’s quarterly sales did not exceed expectations in roughly three years.
Facebook’s numbers were still wildly impressive for the quarter: it saw 42 percent year-over-year growth in ad revenue and 11 percent year-over-year growth in monthly and daily active users. (The social network now counts 1.47 billion daily active users and 2.23 billion monthly ones.) But this is still the slowest quarterly user growth Facebook has seen since 2011, and the company has pretty much stopped growing entirely in the US and Canada, which are its most lucrative markets, according to Recode. The revenue miss also seems to illustrate that the social network and its massive online advertising empire is not, in fact, impervious to bad headlines and an ever-changing and inconsistent approach to policing its platform.
CEO Mark Zuckerberg said back in November 2017, long before the Cambridge Analytica scandal broke in March of this year, that fighting abuse from foreign governments in the form of misinformation and fake news would cut into the company’s profits. It’s not immediately clear whether Facebook’s poor performance this quarter is a direct result of the measures it’s been taking to fight third-party abuse, especially in light of the actions Facebook said it would take to address data privacy after Cambridge Analytica.
On an earnings call with investors, Facebook leadership did say that giving users more privacy controls would in the future cut into its advertising revenues, as ads become less targeted and thus less effective as a result, resulting in lower prices for placement. Regardless, it seems as if Facebook is not the untouchable behemoth investors seem to think it is.
Immediately following the earnings release, the company’s stock fell by nearly 8 percent this afternoon in after-hours trading. Prior to this earnings release, Facebook stock hit an all-time high, and the company’s valuation has ballooned over the months since Cambridge Analytica to nearly $620 billion. Its first-quarter earnings of 2018 seemed to be a bright spot for the company back in April, showing that Facebook had shrugged off its US user decline from the fourth quarter of 2017, following a News Feed adjustment that de-prioritized news and Page content.
In other words, prior to today, the company’s ability to make money has showed little to no signs of having been negatively affected by its News Feed changes, data privacy scandals, Zuckerberg’s appearances in front of lawmakers, or the ongoing moderation issues the company has suffered regarding its policing of hate speech and fake news on the platform. But the earnings tell a different story, and this financial and user growth stumble may precede more structural issues for Facebook in the months to come.
In its earnings call, Facebook Chief Financial Officer David Wehner outlined how this recent instability in user growth would only continue to accelerate, and it may rise to as much as a single digit percentage point decline in the third and fourth quarter of this year. (Wehner declined to speak about user growth in Europe on the call, but the company did disclose that it lost around 1 million accounts due to compliance with the EU’s new GDPR regulation.)
The revelation from Wehner sent Facebook’s stock plummeting even further. As of 5:40PM ET this evening, the company’s stock is down nearly 20 percent, wiping out roughly $100 billion in market value in the course of an hour and a half.
Facebook says that total revenue growth rates will continue to decelerate. “We expect our revenue growth rates to decline by high single digit percentages from prior quarters sequentially in both q3 and q4” CFO Wehner says.
— Sarah Frier (@sarahfrier) July 25, 2018
Update 7/25, 5:42PM ET: Added more recent information from Facebook’s earnings call and the performance of its stock price.