Facebooks stock price takes a dive on slowing growth and gloomy revenue outlook

Facebook thumbs downFacebook reported mixed results in its second quarter results for this year – with positive earnings per share (EPS) results unable to counteract missed revenue estimates, predicted future falls in revenue, and weak user growth in causing the company’s stock price to take a pummelling.

Monthly active users grew to 2.23bn – up by 11 per cent year-over-year (YoY) – but quarter-over-quarter (QoQ) growth was flat in the US & Canada at 241m users and fell by 1m to 376m in Europe, the company’s biggest advertising markets.

Meanwhile, daily active users managed to also grow by 11 per cent to 1.47bn YoY, though this was short Wall Street’s expectation of growth to 1.49bn. Within this, the US & Canada was stuck at 185m (DAUs) QoQ and European users fell from 282m to 279m.

Facebook CEO Mark Zuckerberg also revealed that 2.5bn people now use at least one of Facebook, WhatsApp, Instagram, or Messenger each month.

“This number better reflects our community for a couple of reasons,” said Zuckerberg. “First, it refers to individual people rather than active accounts, so it excludes when people have multiple active accounts on a single app. And second, it reflects that many people use more than one of our services.”

On the financial front, Facebook achieved $13.23bn in revenue – up 42 per cent YoY – but this once again fell short of the $13.36bn estimates. $13.04bn of this revenue come from advertising, also short of its $13.16bn Wall Street estimate. Within this, mobile advertising revenue accounted for around 91 per cent of all advertising revenue, up from the approximate 87 per cent for the same quarter last year.

Looking ahead, we can expect to see continued deceleration of revenue growth. According to Facebook’s CFO, David Wehner, speaking in an earnings call: “We would expect decel in the high-single digits for the next couple quarters. In terms of what is driving the deceleration, its a combination of factors, and I think I outlined those in my commentary. First of all, theres the currency, which is going from being a tailwind to being a modest headwind, we expect.

“Secondly, were going to be focusing on growing engaging new experiences like Stories and promoting those. And thats going to have a negative impact on revenue growth. And then, finally, were giving people who use the services more choice around privacy.”

One bit of positivity for Facebook came in it beating Wall Street EPS estimates of $1.72 in reaching $1.74 EPS. However, this couldn’t save Facebook’s stock price from tumbling by more than 20 per cent in after-hours trading. And Zuckerberg puts much of this negative outlook down to the work Facebook is putting in to make its platforms safer for users.

“Were investing so much in security that it will significantly impact our profitability,” he said. “Were starting to see that this quarter. But, in addition to this, we also have a responsibility to keep building services that bring people closer together in new ways as well.”

What the industry is saying…

Aaron Goldman, CMO at 4C
“While Facebook’s Q2 earnings may have disappointed investors, advertisers remain encouraged. The company posted a 42 per cent revenue increase which is impressive given how big the number was last year and correlates to the 48 per cent year-over-year increase in Facebook and Instagram ad spend we saw through 4C’s platform in Q2. These properties have become critical parts of the marketing playbook and we don’t see any slowdown in sight for 4C clients. As Facebook continues to prioritize privacy and security, and brands continue to invest in the efficiency and performance of Facebook and Instagram ads, we are projecting continued growth.”

Eric Visser, CEO and founder of JustPremium
“After a tumultuous quarter for its PR teams, Facebook will be breathing a sigh of relief as their Q2 revenue of $13.23bn illustrates that the scale of its audiences means it remains an unmissable opportunity for marketers, despite missing analyst predictions. The results indicate that both the strength of its core ad business and the growth of Instagram have contributed to the results – and it’s important to properly analyse and understand the growing role of Instagram in maintaining Facebook’s fortunes.

“Instagram attracts so many users because the content is highly visual and engaging – and brands know that they are attracting eyeballs because the advertising is naturalised into a user’s feed. Many premium publishers have started to adopt a similar offering for brands, by creating beautiful, memorable formats that are optimised across both mobile and desktop. Premium publishers are adjusting to this change in behaviour, using engaging ad formats to create a better advertising experience for consumers. The lesson for brands and publishers remains the same: creativity is king.”

Paul Wright, managing director for the UK, France, Middle East & Africa at AppsFlyer
“For app marketers, Facebook is a particularly useful platform for investing their resources and, according to our data, ranks as the top driver of app installs. The advertising sits seamlessly within the Facebook app and tends to offer a great user experience — and as a result, engagement rates are higher. The other benefit to app marketers is the measurement capabilities that Facebook offers via mobile measurement partnerships, which allows marketers to leverage important insights like lifetime value (LTV) of a user that came from their Facebook campaigns.”

Yuval Ben-Itzhak, CEO at Socialbakers
“Facebook’s Q2 results came as a surprise, but with 2.2bn monthly active users Facebook is still the platform where most consumer engagement with brands is happening in the digital world. Despite growth being slower in Q2, Facebook’s daily and monthly user counts were up 11 per cent year-on-year. This kind of growth at the scale of Facebook should still not be ignored.

“The market’s reaction to Facebook’s results feels nervous in light of Cambridge Analytica and GDPR, but we are still seeing marketers spending consistently on the platform, especially on Instagram.

“Over the last year we’ve really seen Instagram in particular emerge as an advertising powerhouse and revenue generator for Facebook. In June the platform hit one billion monthly users, and in comparing Facebook and Instagram ad share, we saw that Instagram’s share of ads has gone from 10 per cent to more than 50 per cent in just over a year. Social performance data shows that Instagram has become the most powerful platform for brands, making it very important to Facebook’s overall growth – today and in the future.”

Celine Saturnino, chief commercial officer, Total Media
“It’s bad news for Facebook, who missed analyst revenue predictions with revenue of $13.23bn. This is perhaps not unexpected in light of the reputational issues Facebook has suffered and to a lesser extent younger audiences moving away from Facebook as their primary social platform. But it’s not quite doom and gloom for the platform yet, despite stock dropping by 24 per cent. There are rising numbers of daily active users globally, and even in the US revenue per user rose despite flat numbers of active users.

“With such significant scale and targeting capabilities, Facebook is still a key channel for many advertisers. With rumours that WhatsApp will soon be considering ads, there is still potential for Facebook to grow revenue in the future by opening up more opportunities for advertisers, and buying out the competition as emergent social platforms threaten the standing of Facebook. It is still working to crack the lucrative China market, although the sudden disappearance of its license for a new office, signals that this battle may be a tough one.

“Finally, as there is a significant lack of research into the relative effectiveness of platforms where consumption of content is a lot more rapid versus more considered media environments – Facebook continues to receive enhanced revenues on the merits of scale which we may see challenged in the future with the rise of the attention economy and its links to effectiveness . ”  

Array