Falling Facebook stocks suggest scandals may finally be taking toll
Shares drop 7% after hours despite fourth-quarter earnings report showing $21bn in revenue
Kari Paul in San Francisco
Wed 29 Jan 2020 23.20 GMTFirst published on Wed 29 Jan 2020 21.51 GMT
Facebook’s stocks stumbled on Wednesday afternoon after it posted fourth-quarter earnings, suggesting continuing scandals and regulatory roadblocks may finally be catching up with the social media giant.
Shares fell 7% in after hours trading despite a reported $21bn in revenue in the fourth quarter of 2019, higher than the $20.89bn forecast. The average revenue per user reported by Facebook was $8.52, higher than the $8.38 forecast.
Roughly 2.89 billion people now use one app owned by the company – Facebook, Instagram, WhatsApp or Facebook Messenger – the company said in its report.
“We had a good quarter and a strong end to the year as our community and business continue to grow,” the CEO, Mark Zuckerberg, said in a statement. “We remain focused on building services that help people stay connected to those they care about.”
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Wednesday’s drop could be attributed to the company’s relatively high expenses in quarter four, which surged to $12bn after a 51% over the course of the year. The company attributed the increased costs to higher research and development spending.
“Facebook can’t avoid change,” said Sophie Lund-Yates, analyst at Hargreaves Lansdown. “The Cambridge Analytica scandal intensified regulatory scrutiny, and tightening data security as well as fighting fake news is an ongoing – and expensive – challenge”.
Facebook struggled with intensifying regulatory challenges in 2019, including pushback from lawmakers over its proposed digital currency, Libra, and backlash over its decision not to censor false political advertising. The company agreed in July to pay a $5bn penalty to the Federal Trade Commission after its Cambridge Analytica scandal, the largest fine in the agency’s history.
Scrutiny of Facebook will only increase as the 2020 election looms. Zuckerberg referenced efforts in a call with investors on Wednesday, saying the company is “extremely focused” on election security.
“We were behind in 2016, but by any objective measure our efforts on election integrity have made a lot of progress,” he said.
A report from the Guardian showed how the Trump campaign was able to spend nearly $20m on Facebook advertising, including on misleading, xenophobic and outright false rhetoric.
Zuckerberg also said in the call with investors that the company will roll out payments within its WhatsApp messaging platforms in the next six months and mentioned continuing with Libra despite its challenges.
Facebook is continuing to diversify its offerings, which may mitigate the potential effects of consumer fatigue with its primary social platform. The shift may represent challenges ahead, said Tamara Littleton, the founder of social media agency The Social Element. The company is facing serious competition from the social video platform TikTok, for instance.
“With advertising revenue being the significant contributor to Facebook’s success, the risk for Facebook lies in the possibility that users will get bored of its properties – or of its ads,” Littleton said.