How to lose $100 billion in a day

How to lose $100 billion in a day

What a difference a day makes.

On Wednesday 25 July, Facebook’s share price reached $218.62, its highest ever, valuing the company at a whopping $615 billion, around the same as the gross domestic product of Switzerland.

Fast forward 24 hours and the company is facing the biggest single day’s loss in value in history, more than $110 billion.

What happened? The company released its earnings figures for the second quarter of 2018.

On the face of it, there is no reason for investors to be concerned.

Revenues stand at almost $13.2 billion for the three month period, up from $9.3 billion in the same quarter last year. Income from operations is $5.8 billion, up from $4.4 billion in the same period.

But what is spooking investors is the company’s user base. Figures released by the platform show that in Europe, daily active users fell from 282 million to 279 million. US and Canada user numbers have also remained stagnant at 185 million.

User numbers are just one concern for Facebook, and its investors’ advertising revenue is another, particularly in the light of restrictions on how the company can use data in the light of new GDPR regulations.

Chief financial officer David Wehner said in an earnings call with analysts, “As you might expect, we believe that European monthly active users and daily active users may be flat to slightly down sequentially in Q2 as a result of the GDPR roll out. Second, while we do not anticipate these changes will significantly impact advertising revenue, there is certainly the potential for some impact, and we will be monitoring this closely. Importantly, GDPR affects the entire online advertising industry so the Facebook-specific impact is difficult to model in advance.”

The data privacy issues raised by the Cambridge Analytica scandal has worried some advertisers, says chief marketing officer Sheryl Sandberg.

“In the immediate days of the concern, we heard from a handful of advertisers who paused spend, one of whom has already come back. And we haven’t seen a meaningful trend or anything much since then. Advertisers ask the same questions people are — that they want to make sure their and their customers’ data is protected. And I think we are able to answer those questions in a compelling way. In terms of ROI* on the platform, the ROI is really determined by the ability of advertisers to put the right ad in front of the right person and in the right format. And I think we’re seeing impressive growth in all of those areas. We have more advertisers using the ability to target their ads to the right person.”

Sandberg says there are 80 million businesses using Facebook on a monthly basis, of which 6 million are advertisers and 25 million using Instagram, of which 2 million are advertisers.

Addressing investor concern, Sandberg said, “Even if we just convert people who are advertising on Facebook into Instagram, that’s a lot of a growth opportunity. Then you can start thinking about Messenger and some of the other platforms that we have.”

She added, “The thing that won’t change is that advertisers are going to look at the highest ROI opportunity, and what’s most important in winning budgets is relative 19x performance in the industry. And so we think that certainly, we want to provide the best advertising — we certainly want to provide the best measurement — but our ability to do so, as long as things happen across the industry, which is what’s happening, I think we remain in a very strong position.”

David Wehner sounded a note of caution on ROI in the light of greater restrictions on data usage.

“Depending on how people react to the controls and the ad settings, there could be some limitations to data usage. We believe that those will be relatively minor. But depending on how broadly the controls are adopted and set, there is a potential to impact targeting for our advertisers. Obviously, if they are less able to target effectively, they’ll get a lower ROI on their advertising campaigns. They’ll then bid differently into the auction. That ultimately will flow through into how we can realize price on the impressions that we’re selling. I think that’s the mitigating issue that we could see, depending on how GDPR and our broader commitment to providing these same controls worldwide could play out.”

Even though Mark Zuckerberg has lost a lot of his personal fortune today, this is likely to be a blip. The business is still sound and it has plenty of advertisers who are keen to work with the platform, even with increased restrictions on data use.

*ROI – Return on Investment

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Mark Frary is co-founder of Travel Perspective, a social and digital consultancy working with travel companies and tourism organisations to create successful marketing campaigns He is an author and writer specialising in travel, social media and technology. He writes regularly for The Times and has written for many other publications including the Evening Standard, the Independent on Sunday, the Daily Express, Food & Travel, ABTA magazine, the easyJet magazine and Teletext.  Mark also gives expert advice to leisure and business travel companies on their social media and communications strategies and is the co-founder of Social Travel Market, an annual conference on the use of social media in travel at World Travel Market. He is the author of seven books including The Origins of the Universe for Dummies and is currently working on a biography of the ski pioneer Erna Low. Mark lives in Ampthill in Bedfordshire, UK with his wife and three children.

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