What's going on?
Facebook: a book of faces… and they were mainly frowning ones on Wednesday, as the company grew second-quarter sales and users by less than investors expected. Its stock dropped by almost 20%.
What does this mean?
Perhaps as a result of the data scandal that broke in March, involving now bankrupt Cambridge Analytica, fewer people than expected were active on Facebook. The number of active users grew compared to the same time last year, but fell shy of investors’ expectations of 2.25 billion people active on its platform each month by only hitting 2.23 billion. Although it missed sales forecasts, it managed to beat profit expectations, partly thanks to higher average revenue per user – if Facebook can’t grow its users, it can just charge advertisers more to reach them.
Why should I care?
For you, personally: European Union regulators have your back.
The only region in which Facebook’s active users declined was Europe (tweet this) – which could be a worry for the company that heavily relies on “network effects” – the reason you probably joined The Social Network in the first place was because your friends were there – so if your friends are less active, you might be too, which could spell trouble ahead. The decline could have been spurred by Europe’s new data privacy laws – they come with hefty fines, which the European Union isn’t averse to levying, as Google learned last week.
For markets: Investors gave Facebook a thumbs down.
Facebook’s stock has risen 40% since March’s data scandal but fell sharply on Wednesday. It’s been a mixed reporting season for big tech companies so far: while Microsoft and Alphabet (Google’s parent) saw their stocks rise following better-than-expected second-quarter results, those that miss arguably lofty expectations are heavily punished. Last week, Netflix’s shares fell by more than 13% as it reported a similar disappointment to Facebook’s – fewer new subscribers than hoped.