The Abrupt Disruption in Facebook Earnings

Facebook has all of a sudden, hit a wall. The social network ceased to its un-coolness and public resentment over its approach to fake news, privacy, and digital well-being, showing mixed results in its Q2 2018 earnings. The GDPR, Mark Zuckerberg’s testimony before Congress and more such other scandals appear to have added to Facebook’s weak user growth.

Facebook has reached 2.23 billion monthly users, just 1.54 percent up, much slower than Q1’s 3.14 percent (where its growth rate has floated for years). Facebook Earnings have generated $13.23 billion in revenue, just missing Thomson Reuters consensus estimates of $13.36 billion, have surpassed the estimated $1.72 EPS with a clear $1.74 EPS.

User growth troubles

Currently, Facebook has 1.47 billion daily active users, increasing from an especially low 1.44 percent compared to Q1’s 3.42 percent. For comparison, previously Facebook’s slowest quarter-over-quarter, daily user growth was rated at 2.18 percent in Q4 2017. In an attempt to divert attention from its weak user growth, Zuckerberg declared on the earnings call that 2.5 billion people use at least one of its apps: Facebook, WhatsApp, Instagram or Messenger.

The stock market sulked on the slow growth rates, forcing Facebook’s share price down by more than 21 percent to around $170 per share from $217.50 when the markets closed. Initially, the share price dropped 7 percent on reports of slow user growth, but then fell even further when Facebook announced that the revenue growth would slow significantly in upcoming quarters.

The share price descent comes despite Facebook earning $5.106 billion in profit and revenue going up 42 percent year-over-year.

Facebook’s daily and monthly user grew 11 percent yearly, confirming that the impact of its business is still mastering its PR problems. And its DAU to MAU ratio stays firm at 66 percent, indicating that users are still visiting the site often.

One tough spot for Facebook was its number of monthly users from the US and Canada that has been stuck at 241 million, the same count as last quarter. After failing to advance in that core market in Q4 2017, it seems like Facebook finally, has hit saturation after 14 years. Moreover, in Europe, Facebook lost 1 million users, coming down to 376 million monthlies. That could hint that GDPR requirements and the bothersome terms of service changes it had to get users to agree to, dissuaded some from browsing.

Decelerating revenue growth

Facebook still managed to heighten its average revenue per user in all markets, rising from $23.59 to $25.91 in the U.S. and Canada, showing improvement in its targeting and competition for ads. But its share price could be heavily affected by the fact that it’s stopped growing at home. Thus, Facebook will have to try and invent more ways to squeeze money out of its existing users.

The earnings call saw a concerned warning from Wehner, who stated that after 42 percent yearly revenue growth seen in this quarter, Facebook expected high single-digit falls each quarter to that metric over some of the next quarters.

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