Facebook’s $100-B market loss: What’s in it for you?

Gelo Gonzales
Facebook’s $100-B market loss: What’s in it for you?


It's the biggest wipeout in stock market history

MANILA, Philippines – Facebook seemed invincible since even before its initial public offering in 2012, amassing users at rates Myspace and Friendster would have killed for, and quarter by quarter, showing nothing but upward arrows in their reports.

But that changed, Wednesday, July 25, when the company’s revenues and profits missed expectations – not by a mile but certainly enough to trigger significant sell-offs and to cause the biggest stock market wipeout in history.

Overnight, Facebook had more than $100 billion wiped off of its $630 billion market value, pre-earnings report while CEO Mark Zuckerberg lost about $15 billion, a sixth of his net worth. 

European data regulations, privacy issues, and the exploration of new advertising products were identified by Facebook and analysts as the main causes of the slowdown, and likely, all the scandals it has faced, even if Facebook didn’t directly point at those reasons. 

What it means for regular user? 

No, your Facebook account will not be disappearing, and will remain business-as-usual, with the regular algorithmic changes, interface tweaks, and subtle changes that will still have you going, “Is this a new button or has it always been there?”

One feature that they may be planning to highlight more is Facebook Stories, the platform’s Snapchat clone, which in May 2018, reports of reaching 150 million views a day – half of Instagram stories, and about 40 million less than Snapchat.  

The company may be looking to monetize it more, if they aren’t already.

Sheryl Sandberg, Facebook’s chief operating officer, had identified it as an “important opportunity for growth” because they are engaging, but noted that it takes time for advertisers to adopt new formats and has a look-see approach whether they’ll be able to sell the portion as much as regular feed ads.

Ads or other monetization strategies may be seen on other Facebook-owned platforms with currently more growth potential – WhatsApp, Instagram, and Messenger – as engagement levels on the main Facebook platform have seemingly stalled. It also lost 1 million users to the EU’s General Data Protection Regulation (GDPR) in its first quarter of implementation.

What about fake news, disinformation, and misinformation on the platform? Is Facebook looking at this as a wake-up call? 

Not strictly a wake-up call as Facebook has been more than aware of these systemic issues, and has been vocal about the changes they’re doing to somehow fix the situation; toxicity on the platform affects engagement levels.

In Zuckerberg’s post after the earnings report, he said that their investments in security, content review, fake accounts, and pages will “significantly impact our profitability.”

Since the platform could be abused for political gain, he said they’ve ramped up the number of people working on security and content review to 20,000, and have rolled out changes designed to enhance political ad transparency. 

Their system in reviewing content is still far from perfect, however, as an exposé in July by UK’s Channel 4, showed that their moderation guidelines aren’t being communicated well enough to content review subcontractors. Zuckerberg describes it as a “journey,” and hopes that the community trust his words that they indeed “still have a lot of work to do.”

At least 2.5 billion people – the number of users across all Facebook-owned platforms – are at the mercy of forthcoming improvements. The number of people that are affected by whatever changes that the platform rolls out is more than that, as the platform is so influential that whatever happens on Facebook affect the rest of society, even non-users. 

“Thanks for being on this journey with us,” Zuckerberg has said.  

If, by chance, I own Facebook stock, is it time to sell? 

Analysts are divided, as reported by Financial Times.

On the one hand, you have the likes of GBH Insights analyst Daniel Ives saying that this is merely a transition period, in which Facebook is trying to find “the next leg of its growth story.” Outcries from users, media companies, and some governments, and stricter regulation in the form of the GDPR have certainly made the climate less maneuverable in terms of finding financial spouts. 

On the other hand, Brian Wieser from Pivotal Research, was harsher, saying that Facebook has hit the limits of digital advertising, having won over print and most other media but not television – and the top digital ads seller, Google.

Many analysts also speculate that, at this point in the company’s maturity, revenue and profit growth are expected to be much slower from its initial, protracted boom. 

Another observer thinks that the company is actually only “sandbagging,” a term which means a company resets expectations, tempering investor hype, before attempting to exceed the lower expectations the following quarter. The observer, Gene Munster, says, historically, this has been part of the company’s playbook.

Facebook’s Q2 2018 drop is the first time in 3 years that the company’s quarterly sales didn’t exceed expectations. The wind certainly blew another direction, and this quarter appears to be pivotal, and may force Facebook further to make bigger changes to their philosophy of connecting the world – which has been mostly, at any cost, up until the big controversies hit. 

What bigger changes? 

A previously unreleased memo by Facebook’s chief security officer, Alex Stamos, offers a few nice suggestions:  

“We need to build a user experience that conveys honesty and respect, not one optimized to get people to click yes to giving us more access.” 

“We need to intentionally not collect data where possible, and to keep it only as long as we are using it to serve people.”

“We need to listen to people (including internally) when they tell us a feature is creepy or point out a negative impact we are having in the world.”

“We need to deprioritize short-term growth and revenue and to explain to Wall Street why that is ok. We need to be willing to pick sides when there are clear moral or humanitarian issues. And we need to be open, honest and transparent about our challenges and what we are doing to fix them.”

As Zuckerberg touted their 20,000-strong security and content review team, Stamos said he’s leaving Facebook in August – although, he said, not for issues relating to Cambridge Analytica, and more because of internal reorganization. The note surfaced a day before the earnings report was released. 

Have other tech companies experienced such a fall? 

Falls are not unprecedented but the levels seen by Facebook is not.

According to data collected by Business Insider, Intel is second with single-day losses north of $80 billion but not more than $100 billion. They are followed by Microsoft, Apple, Exxon, General Electric, Alphabet, and Amazon with losses north of $30 billion but not more than $80 billion.  

But even with the fall, Facebook’s core ware – the ads – is expected to remain appealing to customers because of their scale and technology, according to Jesse Math, the Facebook lead of New York-based digital marketing firm PMX Agency: “There’s still unprecedented scale, the best ad tech in the industry.”

“In the short term, Facebook is still viable. Really this quarter and this year it’s focused on a long-term strategy, everything they do is focused on making Facebook a place where users want to be. All the changes it’s been making to the platform, the algorithms, the tools advertisers use are for the long term,” he said. 

Down but not out, Facebook is likely to deal with the blow head-on.

It’s a historic loss, but some signs say that it’s not as bad as it seems; unwittingly, a self-inflicted fine that may result, hopefully, in a re-evaluation of growth philosophies and priorities, and some long-term good. – Rappler.com 

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Gelo Gonzales

Gelo Gonzales is Rappler’s technology editor. He covers consumer electronics, social media, emerging tech, and video games.