Facebook on the Radar
CEO examines the cause and effects of Facebook's recent slow performance
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Archimede Mulas London 27/07/2018
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On Thursday, Facebook's share price dropped by 20% from an all-time high of $217 per share, cancelling US $120 Billion of market capitalisation. However, despite lower than analysts' forecast, Facebook results were quite impressive. Why did this happen? Today, CEO will take a look into Facebook to understand the reasons behind the recent highs and lows.
2018 has not been an easy year for Facebook. Following the revelation that users' data was stolen by Cambridge Analytica and other firms, the company faced increased scrutiny from investors and public institutions alike. Mark Zuckerberg, Facebook CEO, was forced to defend the company in hearings at the US senate and the European parliament, promising more control over the handling of users’ data. Investors were, rightly, concerned about the sustainability of Facebook's business model. In fact, user generated data is key to create revenues for the company. Facebook built a free social networking website which allows registered users to share opinions, ideas, photos, videos, and activities with their contacts and public figures. The company enables marketers to engage with its monthly active users (MAU) based on information they have chosen to share (i.e. age, location, gender, interests etc.). Following input from marketers, Facebook displays advertisements on its platforms including Facebook, Instagram, and mobile applications. Facebook fees are calculated on the basis of clicks made by users, actions taken by users, and impressions delivered. Advertisements make 94% of Facebook revenues; the company is trying to diversify its revenues streams by taking a fee for processing payments on its app-based marketplace. Facebook numbers show a history of success and impressive growth. The company reported on Thursday its earning per share of US $1.74 and revenues of $13.23 billion for a year-on-year growth of 42%. These are impressive figures, that every company would love to have. However, Facebook used its investor to amazing results in line with analysts' forecast since 2015. David M. Wehner, Facebook CFO, revealed in a call with analysts that the lower profits are caused by the massive investments to secure users' data. Moreover, he warned that in the years to come, Facebook would grow at a lower rate, as there has been a decline of MAUs in its core markets. These declarations triggered a dramatic sell-off of Facebook shares and the price dropped by 20%, cancelling US $120 billions of market capitalisation, the largest drop in value in the history of NASDAQ. While shareholders are still reeling after this black Thursday, Facebook is planning a comeback and remains convinced that its business model is solid and can continue to deliver amazing value. The company believes that the advertising revenue is strong and more value is still to be extracted by the other platforms of Facebook group, such as WhatsApp and Instagram. In addition, Facebook is trying to revamp its product line with the acquisition of Israeli messaging company Redkix for an alleged $100 Million. Redkix's product combines email and team messaging, and the company will be merged with Facebook's Workplace, a subscription-based social platform for businesses. The company wants to revitalize this line of business and become more appealing for the corporate world. Will it finally be acceptable to check Facebook at work? |