Something Is Wrong at Facebook


But that doesn’t mean the company is doomed.

Facebook stock was down over 20 percent in after-hours trading yesterday after the company announced earnings that missed expectations, along with expectations of slower growth in the future. The drop, which was the largest single decline in the firm’s history as a public company, wiped more than $100 billion from the company’s market value.

It wasn’t the first time Facebook’s shares had plunged. Back in March, after the Cambridge Analytica scandal came to a head, the stock shed 18 percent of its value over two weeks. But since that low, it had risen to day after day of new, all-time highs—up about 70 percent overall. That recovery made the company seem unstoppable, even in the face of its role in data extraction and election manipulation.

This time, there’s no single reason for Facebook’s reversal. Instead, a combination of factors is creating headwinds for the company, and that’s not going to stop anytime soon. But even so, Facebook has enormous room for growth, and taking this setback as a sign of the company’s overall decline is wrongheaded. For better or worse, Facebook is fine, even if it is also terrible.

Wall Street can be fickle, overreacting to short-term bad news. And on first glance, it seems like Facebook’s Q2 results were pretty good. The company beat earnings estimates, and it missed revenue expectations by less than 1 percent—bringing in $13.23 billion instead of the $13.34 billion that analysts had expected. But on the earnings call, Facebook executives issued several warnings that startled investors.

Facebook’s chief financial officer, David Wehner, warned that its revenue growth would slow over the remainder of the year. Wehner also said that the company’s profitability would slow. Its operating margin has almost reached 50 percent in the past. That’s an incredible number—Google and Apple often reach only 25 to 30 percent. Wehner urged investors to expect that figure, 44 percent for the current quarter, to trend toward the mid-30s in the future. The reasons amount to investments in new products and services, and changes related to privacy and security. Facebook’s user growth also slowed, and actually dropped in Europe, thanks to the effects of the European Union’s General Data Protection Regulation (GDPR), which went into effect in May.

For Facebook’s critics, the crash had moral implications. At last, the company’s misdeeds might be catching up with it. But a single bad day—one that hasn’t even concluded as I write this—says very little about its performance over time. With the exception of the March calamity, driven by election scandals and the company’s questionable responses to them, many of Facebook’s stock dips tracked with fears about its ability to continue to increase profits at its prior rate, the apparent cause of a 5.5 percent drop in November 2016, for example.

Now that the company has confirmed that its humongous profits might decrease to just massive ones, Facebook looks like a different company for investors. In particular, Facebook stock is a popular holding for hedge funds, which might have decided that lower future profits suggested it was time to redistribute capital.

As a public company, Facebook’s stock performance has an impact on how it manages its products and services, which has an effect on its users. And there’s reason to believe that this moment might inspire more substantial changes for the billions of people who use Facebook’s offerings, which include Instagram and WhatsApp.

One problem is users. Yesterday, for the first time, Facebook shared that it boasts some 2.5 billion users across all its services. There are 7.6 billion humans on the planet, and somewhere between 3 and 4 billion of them have internet access. That gives Facebook plenty of room for growth, in theory, but reaching new users is hard and expensive. Facebook recently abandoned its effort to deliver internet service by drone, one possible way of reaching that last couple billion of latent, offline users. Mark Zuckerberg’s initiative, meanwhile, has helped only about 100 million people come online. And now that it’s clear that privacy regulations such as GDPR are reducing user growth and activity, people’s attention might slowly slip away to other activities. Hoaxes, fake news, and Zuckerberg’s own commitment to helping people spend less time using his products further erode that activity.

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Comments (3)
No. 1-1

Something is not wrong with Facebook, there are so many things are wrong with Facebook. One of many is inaccuracy to show people what their preferences are set to view as per their interest. As a digital content writer, I assist student with nursing paper writing in UK at and in process I get to study and research a lot. A study conducted by Pew Research Center indicates that 30 percent of active adult users in United States say that Facebook is wrong while classifying their interest. Just about 3/4 of users asked didn’t know about the list of interest and behavior.