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Facebook Reports Slower Than Expected User, Revenue Growth, Now Has 2.23 Billion Monthly Active Users

Facebook Reports Slower-Than-Expected User, Revenue Growth, Now Has 2.23 Billion Monthly Active Users

By Associated Press | Updated: 26 July 2018 11:05 IST

There's a scratch in Facebook's Teflon coating.

The social network's user base and revenue grew more slowly than expected in the second quarter as the company grappled with privacy issues, sending its stock tumbling after hours.

The company also warned that it expects revenue growth to decelerate in the next couple of quarters as it promotes new, and for now less profitable, products- such as its Stories disappearing message feature. It is also allowing users to make "more choices" around data privacy amid public outcry and regulatory pressures.

The earnings covered the company's first full quarter since the Cambridge Analytica privacy scandal erupted. But analysts attributed the user growth shortfall largely to European privacy rules that went into effect in May, not to the furore over the political consulting firm with ties to President Donald Trump, which improperly accessed the data of tens millions of Facebook users.

Shares sank 17.8 percent to $178.77 (Rs. 12,270) in after-hours trading after closing at $217.50 (Rs. 14,930). Wednesday's closing price amounts to a 31 percent increase in the past year; earlier in the day, shares hit a record high. While the stock fell modestly after the initial earnings numbers came out, it tumbled more sharply after CFO David Wehner warned of the revenue deceleration during Facebook's earnings conference call.

Still, the results suggest that Facebook may have weathered the scandal without major harm to its business, even if its public image has taken a hit. While revenue fell short of Wall Street estimates, it did so by only about 1 percent; profits, meanwhile exceeded forecasts.

But Facebook continues to grapple with big existential questions, ranging from its users' privacy to tech addiction to how it deals with fake news and misinformation, hate speech and extremism on its service.

At times, it has seemed as though Facebook can't quite decide where its values really lie. For instance, it continues to straddle the line between policing what users say and remaining a neutral platform in an increasingly divided world, and between protecting privacy while collecting as much information on its users as possible.

Facebook had 2.23 billion monthly users as of June 30, up 11 percent from a year earlier. Analysts were expecting 2.25 billion, according to FactSet. User growth - both on a monthly and daily basis - was flat in the US and the rest of North America, while it declined slightly in Europe.

Facebook has largely saturated in the US and Western European markets, and is now looking to countries such as Brazil, India and Indonesia for new users. Revenue from these regions, however, is far below what Facebook rakes in from the US and Europe.

The company earned $5.1 billion (roughly Rs. 35,000 crores), or $1.74 per (Rs. 120) share, up 31 percent and above analysts' estimates of $1.71.

But revenue - up 42 percent to $13.23 billion (roughly Rs. 90,900 crores)- was slightly below the $13.34 that Wall Street was expecting.

Facebook said the European privacy rules, called General Data Protection Regulation, or GDPR, did not have a big effect on the quarter's revenue, but also noted that they were only in effect for about a month before the quarter ended.

Over the long term, GDPR may end up favouring Facebook and other large companies that have the resources to adapt to new requirements. They could similarly disadvantage smaller, lesser-known companies that don't have the resources to comply and which could face big fines if they don't.

One bright spot for Facebook has been Instagram, the photo-sharing app it bought for $1 billion in 2012. Instagram now has more than 1 billion users, and analysts expect it to be a model for how Facebook molds its other big app purchase, WhatsApp, into a lucrative business. So far, WhatsApp doesn't show ads, and its founders Jan Koum and Brian Acton left Facebook amid disagreements over advertising and other issues.

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