Facebook stock imploded after a brutal number in its earnings report. Here's why FB shares may not recover over the long term.
There’s a simple reason why Facebook stock is in free-fall today. The Mark Zuckerberg-led social media giant has peaked.
FB shares slid more than 6% on Thursday after Facebook reported mixed Q4 earnings. Earnings per share ($2.56) and revenue ($21.08 billion) outperformed.
But there was another figure that loomed much larger: a massive 51% increase in operating costs and expenses, which rose to $46.71 billion for the year.
On top of stagnant user growth, this rise in expenses signals an alarming trend for the social media giant.
Attempts to expand the company into new sectors and ventures appear to have stalled. Combined with a decline in user engagement, this hints that the company is struggling to grow.
It’s tough being Facebook.
Because of billion-dollar fines, multiple anti-trust investigations, and the cumulative effort of having to constantly prove that it’s not the embodiment of evil, the cost of running the Facebook behemoth is growing.
Unsurprisingly, Facebook’s operating margin is declining as a result. In 2018, it was 45%. In 2019, 34%.
Facebook’s shrinking profit margin is actually a longer-term trend, the result of having to spend more to keep its colossal network running – and prove to regulators that it’s secure and safe.
Yet rising costs aren’t the only reason why Facebook stock is imploding and investors may be on the verge of leaving en masse.
Facebook is struggling to expand.
FB’s quarterly results showed that its global monthly active users (MAUs) number had stagnated at 2.5 billion. U.S. and Canadian MAUs did rise – but only by 1 million to 190 million.
If the market wasn’t already spooked by such feeble numbers, they’re almost certainly spooked by the fact that Facebook’s growth plans appear to be dead on arrival.
Its much-vaunted Libra cryptocurrency faces stark opposition from governments around the world. Numerous industry figures have predicted that it won’t launch in 2020 – maybe ever. And last week, Vodafone became the latest company to pull out of the Libra Association, which would oversee Libra’s network, if it ever launches.
So much for its plans to sweep up all our financial data.
Then there’s WhatsApp, which Facebook acquired in 2014 for a cool $19 billion. Despite having big ideas for WhatsApp, Facebook recently shelved plans to insert money-making ads into the messaging platform. Instead, it’s focusing on trying to develop revenue streams by catering to businesses who suspect their customers might want to use the app to message them. Good luck with that.
This really shouldn’t be surprising. Look at other new routes to growth Facebook has dallied with in the past. They’ve almost all failed spectacularly.
Do you remember its hilariously ill-fated Free Basics service? Facebook launched it in 2013 with the grand aim of providing “free” internet access to millions of people in India. It was ignominiously shut down by India’s telecoms regulator in early 2016, ostensibly for undermining net neutrality.
Facebook is suffering from a pathological inability to launch new successful ventures. It doesn’t look capable of expanding beyond its basic business, and it’s this suspicion that is scaring off investors.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.
This article was edited by Josiah Wilmoth.